Question

Milton Friedman:

States that there is only one social responsibility that organizations have and that is to use its resources and engage in activities designed to increase profits. Therefore, there is no need for corporate social responsibility as the organizations main goal is profit- making.

With this view organizations have four responsibilities.

1. Discuss the four responsibilities in their orders.

Answer 1

Answer ;

When Milton Friedman made the statement of social responsibility back in 1962, the concept itself was new and emerging. The world was striving to make its way through the industrial revolution, followed by the two world wars. The struggle for survival was still a major challenge back then. In the midst of such a difficult scenario, it cannot be less understanding of the fact that when Milton Friedman discussed about his idea of social responsibility, it could had been best suitable to the businesses in that time. However, with the passing of time, the concept of social responsibility gathered momentum, once the survival concept of these businesses stabilized. As a matter of fact, today's society has increasing expectations about corporate social responsibility. Also, today's diverse workforce brings a wide variety of values and morals to the workplace. Therefore, its shall rather be a very narrower concept if to say that merely increasing profits so long as the business sticks to the rules of the games without committing fraud. The social responsibility in today’s era, have spread its wings to include the broader concept of ‘Corporate Social Responsibility’. This concept is much wider than what Milton Friedman suggested in 1962 and is included in the overall concept of the Managerial Ethics theory that can be categorized into three essential parts:

• Classical
• Behavioral
• Quantitative School

The Social Responsibility of the Corporate is now a scientific approach of Organizational duties towards the larger benefits of the society; however it might have a bureaucratic angle too, much as not even thought by Milton Friedman in his understanding of this topic.

Its emergence has been due to

Ø Growth in size of corporate enterprises

Ø Education and impact of business activities in society

Ø Claims made by Companies on society

Most of the mature management has started realizing that only socially responsible behavior can work towards building favorable public opinion. It is not that they are altruistic - not because they are interested in public relations. The managers have to face a dilemma of where to draw a line.

We have an anomaly of economic analysis as an only reliable way versus over concentration of profits which has led to a number of examples of no consideration to:

                - Environmental health

                - Worker safety

                - Consumer interests and other side issues.

Therefore, the Professionals find the doctrine of social responsibility as incompatible in a free society. In a free society, a corporate executive is an employee of the Firm’s owners. He has direct responsibility to his employers.

Under today’s model of Social Responsibility, contradict to what was comprehended by Milton Friedman, there is an internal focus laid upon:

Ø How and what type of people we should have

Ø How and why working conditions can be and should be improved

Ø How the computer / models could be used in decision making

However, it is to be noted that where on one side, the Organizations are more concerned about the internal environment; on the other hand, very less significant emphasis is given to the External environment in most of the cases such as below:

Ø The ups and downs of the economy

Ø The changing attitude of customers

Ø Requirements of governmental agencies

Ø The inflated costs of energy material and labor

Little do we realize that all of the above factors affect the working of the internal environment and its management. Hence responsiveness to the changes in the environment is very vital for its success. There has been a paradigm shift from profit interest and the interest of the owners/Shareholders to the effects of their actions to quality of life. Accordingly, they hold themselves responsible not only to the Shareholders but also to the larger and more disparate community of the Stakeholders that include the Internal stakeholders such as owners, employees and shareholders; as well as the External stakeholders such as the suppliers, customers, Government agencies and the society at large.

Thus accordingly, in order to fit the Corporate Social Responsibility in the Organizational culture, three distinctive phases of managerial responsibility have emerged, which was obviously not thrown light upon by Milton Friedman because it wasn’t much of relevance back then. This can be divided into Phases.

Phase I      Profit Maximization Management

Ø This concept comes out of the theory propounded by Adam Smith “ Wealth of Nations” which dates back to 1776 when poverty was at its peak.

Ø Entrepreneurs will produce what people want only when they can earn a profit by doing so.

Ø They will allow them to earn in their own self interest, production will then increase

Ø When it does so, competition will enter and drive the prices down.

Phase II     Trusteeship Management

Ø Ownership of the enterprise was a shared ownership

Ø Corporate ownership diffused on to thousands of stock holders

Ø Managers job, maximize profits

Ø Serve as trustees

Ø Mediate opposing claims of employees, stockholders, suppliers, customers and public at large.

Ø From the earlier situation of owners managing the business, it is the professionals who started managing.

Ø Role change – from total profit maximization to a viable compromise of diverse groups in the organization's environment.

However, the modern Organizations are in Phase III

“ Quality of Life” Management : A sharp contrast from profit maximization to trustees / managers and now to “what is good for society is good for our company” concept. Under this phase, it is believed that Profit is essential – accepted – but “should not produce or sell unsafe or shoddy goods which affect the quality of life”. The government’s role is to become a partner to solve societal problems and not as an invigilator – an inspector.

With the above concept, there has been a significant change in manager’s role in an Organization. Many managers of today themselves believe that they have a responsibility to society in addition to their responsibility towards the organization.

With the questions that arise like:

• Where does such responsibility begin and where does it end?

Ø What rules of conduct should govern the exercise of executive authority? Should a Firm place stock holders’ interests before those of society or the environment?

Ø Should a Firm be held responsible for the social consequences of its operations?

Ø When is regulation necessary and when is it an excessive burden?

The changed external environment has created a new set of values and expectations. But more is expected of organizations and their managers. Ethical and social demands on business have increased steadily. Social Responsibility for the Business is concerned with variety of aspects such as expectations of society, fair competition, advertising, public relations, social responsibilities and corporate behavior in the home country as well as abroad.

Business cannot isolate itself from the rest of society. Therefore, with this, I can conclude that I disagree with Friedman’s claim that the only social responsibility of businesses is to generate profits.