1. Corporate social responsibility is defined in Chapter 5 as the corporate duty to create wealth by using means that avoid harm to, protect, or enhance societal assets. Did GE in the Welch era fulfill this duty? Could it have been done better? What should it have done? Jack Welch did make GE the most valuable company in the world. He was described as “the most important and influential business leaders of the 20th Century” by some Wall Street analyst. Nevertheless, Jack Welch as the CEO did not fulfill the duty of social responsibility.
He did not avoid harm or protect societal assets. Under Welch’s leadership the GE Company contributed to environmental damages in areas of the country which manufactured GE products. One instants is GE heavily polluted the Hudson River with PCBs, one of the most toxic and persistent man-made substances that can cause cancer in people. From 1947-1977 GE dumped as many as 1. 3 million pounds of PCBs into the Hudson River. It has turned 197-mile stretch of the river into the nation’s superfund site. Since then there has been a struggle for GE to clean up the mess.
In 1980 Congress passed the Superfund law which has created a tax on the chemical and petroleum industries and provided broad Federal authority to respond directly to releases or threatened releases of hazardous substances that may endanger public health or the environment. GE has failed to comply with this law. They are fighting the development of clean-up plan with every tool it can buy by lobbying congress, attacking the Superfund law in court, and launching a media bitz to spread disinformation about the usefulness of cleanup, claiming that dredging the river would actually stir up PCBs which was false claimed by EPA and outside experts.
If they do not clean up the mess it could cost tax payer $350 to 400 million dollars. This is showing that GE is not protecting society and is actually harming people. When Welch was CEO he could have just cleaned up the mess and it would have reduces the health risk it cased to people. Instead he choose to fight the clean up process which cost him millions while he could have just spent to money and cleaned it up to avoid harm, and protect society. Another way he harmed, and did not enhance society is the number of people he laid off in the company. With is five years of him taking over 1 and 4 people would leave GE payroll.
The book states, union leaders estimate that in his last 15 years GE eliminated 150,000 jobs in the United States through layoffs, subcontracting, and out sourcing to foreign countries. With the extensive about of layoffs and outsourcing jobs it hurts the United States economy by increasing the unemployment rate and the American debit ratio. Welch has added the economy of outsourcing which is leaving American’s with out jobs here and unable to find jobs. This is not enhancing are society when the unemployment rate is increasing due to layoff employees and outsourcing jobs over seas.
The only way Jack Welch fulfills its primary economic responsibility in paying taxes. They paid 5. 7 billion dollars in taxes in 2000. Taxes do help in society in many ways though. The taxes paid to state and local jurisdictions help pay for police and fire protection. Federal income taxes help pay for defense for the country. They also pay for capital facilities such as highways and other transportation services and for help for those who are poor or ill. Jack Welch believed that he fulfilled his social responsibility by paying taxes because how that helps society.
He said, “I think a company’s social responsibility is first and foremost to winning because winning companies are the only companies that can give back. Winning companies pay taxes. ” However, GE pressured cities, countries, and states to lower taxes by threatening to move operations elsewhere. This impacted schools and the infrastructure by lowering the budgets. He believes in paying taxes is his social responsibility but will do anything to lower the taxes which showing his lack of social responsibility and do anything to lower cost to increase profits.
Paying taxes is wonderful and all but it is not the only social responsibility that a corporation should have. Jack Welch should have been proactive in his cleaned up the PCBs in the Hudson River, to help prevent the harm of the fish and the citizens who live near and on this American water source.
He should have considered the layoffs and what effect outsourcing had on the US economy. It would have been more socially responsibly to have looked for ways to enhance American work force thru innovative ideas and partnering with other businesses in the world. In his defense, he did fulfill the economic responsibility of paying taxes to help society; he would have done anything in his power to lower the taxes though.
He could have done more! 2. Does GE under Welch illustrate a narrower view of corporate social responsibility closer to Friedman’s view that the only social responsibility is to increase profits while obeying the law? Welch does illustrate a narrow view of the corporate social responsibility closer to Friedman’s view. Jack Welch did believe the only social responsibility is to increase profits while obeying the law. Welch said a “CEO’s primary social responsibility is to assure the financial success of the company.
” It is all about hitting the numbers with Jack Welch. He did this by doing anything to lower the cost and he delivered the growth figures that could only be dreamed by lesser companies. He improved the company’s market value from twelve billion dollars in 1981 to approximately 280 billion dollars in 2001. He achieved this by closing, selling, or fixing manufactures within GE, and by outsourcing jobs to cut cost in Mexico. Welch’s vision was that every GE business would be the number one or number two competitor in its industry. If the business was not able to hit its numbers he would fix it, sell it, or close it down.
He closed 73 plants, sold 232 businesses and eliminated 132,000 workers from GE payroll all to increase profits. Another way he increased profits was outsourcing jobs. It cut cost by moving facilities & jobs to Mexico’s low wage labor markets. Ed Fire, the union’s president, estimated that two-thirds of the 30,000 lost jobs were simply transferred to low-wage countries. He would find the lowest wages, lowest benefit levels, and most intolerant working conditions to help boost revenue. GE has eliminated additional jobs in the United States by pressuring its suppliers as while to migrate along with it to Mexico.
By this they have eliminated a large number of jobs in the US. This is not helping protect society with job security. It is only helping the company increase profits which show that GE only believes its social responsibility is to increase profits and not help the society. GE did increase profit by obey the law. However they are such a powerful company with too much political power and usually the laws are written in their favor. This makes it easier for them to obey the laws since Welch used his influences to get rulings in GE’s favor. An example of Welch influential powers is a court case in 2004. In the case, Judge S. R.
Underhill ruled in favor of GE in a tax case involving events that took place from 1993-1998. The main issue is whether a corporation can ethically exploit features of the tax law. In this case, GE shifted 98 percent of the taxable income to two non-taxable Dutch Banks, but did not shift 98 percent of the benefits. Also, the GE tax process resulted in fully depreciated airplanes being depreciated a second tome. The courts ruled in his favor (Bierman). Jack Welch did have a narrow prospective to corporate social responsibility. He sole thought that increase profits was it. He should this by saying the only good company is a “winning” company.
3. How well did GE comply with the “General Principles of Corporate Social Responsibility” set forth in the section of the title in the chapter? The general principles stated in the book are and how Jack Welch complied to the principles are: •Corporations are economic intuitions run for profit. This principle is about the greatest responsibility is to provide economic benefits. Jack Welch manly ran his corporation by this principle alone. In this principle it believes that they should be judged primarily on economic criteria and cannot be expected to meet purely social objectives without financial incentives.
•All firms must follow multiple bodies of laws. This principle includes obeying corporation laws and chartering provisions, the civil and criminal laws of nations and bodies of regulation that protect stakeholders, and international laws. GE does obey the laws and regulations stowed abound them. However, the company is too politically powerful and regulations are written in favor of GE some critics state. •Corporations have a duty to correct the adverse social impact they cause. It states that they should try to internalize external cost, or cost of production borne by society.
GE has not fulfilled its duty with this principle. GE in 1977, as stated in question on, dumped 1. 3 million pounds of PCBs into the Hudson River which impact the society around the area and the fish in the river. The harmful toxins have been linked to cancer. GE has refused to clean up the mess. They are fighting the clean up with every means necessary. They are not trying to help society with the damage it has caused. It will probably in the end cause tax payers money to clean up the mess. •Managers should try to meet legitimate needs of stakeholders.
In this principle, manager’s primary responsibility is to customers, stockholders and employees. GE did care about its stockholders. For instance, an example from the text book stated that if you invested $100 in GE stock in 1981 and held it there for 20 years it would have been worth $6,749. This shows that he had a great deal of interest in the money that the stockholders make. Shareholders were enriched with Jack Welch as CEO. Earnings per share rose from $0. 46 in 1981 to a rising to $1. 07 in 2000. He said he had a great deal of interest in his employees; however he laid off one and four employees.
•Corporations should accept a measure of accountability toward stakeholders and publicly report on their market, mandated and voluntary actions. GE did report this action which made is confirmable to parties outside the firm. The voluntary actions that was reported for its philanthropic foundation, was that they donated forty million in grants to colleges, universities, and nonprofit groups in the United States. Also, former GE employees volunteered one million hours community services. In market actions it creates several hundreds of jobs, pays 5. 7 billion dollars in taxes, and makes valuable products for society.
In mandated actions, GE follows government regulations and agreements negotiated with stakeholders apparent to the public. After evaluating the general principles of social responsibilities Jack Welch didn’t apply himself to the principles. They one only he applied his company to was the institution is run for profits. He also cared a lot about making the money for the shareholders. Nevertheless, he lacked the responsibility to his employees and environmental society. 4. What are the pros and cons of ranking shareholders over employees and other stakeholders? Is it wrong to see employees as costs of production?
Should GE have rebalanced its priorities? A United States survey states, “8 out of 10 directors rank shareholders ahead of all stakeholders including employees (2). They are doing all they can to enhance shareholders value. The shareholders collectively own that company. And there interests are solely in the profit and performance and the direction the organization is in. The shareholders play an important role in raising finance of the organization. By ranking the shareholder ahead of the other stakeholder they are maximizing profits and shares. Shareholders give the organization continuous pressure to deliver results.
They want a return on there investment. They want a management style where the need is only to increase profits which results in excessive pressure on the employees. The best interest of the company finances is not always in the best interest on the employees, the shareholders believe. When focusing on what the shareholders what the organization gets lost in the business environment focusing on profits instead of the people, the employees and other stakeholders. What they forget is that the stakeholders and employees are the business and the ones making the profits. The employees are the business greatest assets.
If the focus just stays on the shareholders which are profit generated, over their employees, they will soon loss their only profit generating resource. As a result, corporations need to ensure the stakeholders are satisfied first to produce a profit. Growing the business and ensuring employees are fairly treated should the up most importance by managers and directors. Employees are part of cost of production. Costs are defined as those expenses faced by a business in the process of supplying goods and services to consumers. There is fixed and variable cost in production. Employees are apart of fixed cost by the salary of wages they receive.
The variable cost for employees includes the wages of part-time staff or employees paid by the hour. Employees are huge part of production cost. GE should rebalance some of its responsibilities. Jack Welch should have taken more interest in his employees well being and the environment. Like now under the supervision of Jeffery Immelt, is in the process of rebalancing a culture shift of involvement in the environment. He has “Ecomagination” campaign featuring a loveable dancing rain-forest elephant that projects a friendly corporate face. They are now also marketing environmentally friendlier technologies such as wind power.
He is trying to shift the focus from the shareholder to the stakeholders which Welch should have done. There is no doubt that Jack Welch is one of the most admired CEO’s of the 20th century. He turned one of America’s oldest companies into one of its largest income producing mega organization in the world but at a cost to society and individuals. In our new business models we should take the best of Jack Welch’s era and mix it with the new Ecomagination Societal accountability trends to create a business environment that looks at the entire picture to create profit and preservation of societal values.