Friedman has for a long time held that the social responsibility of business is profit maximization. He argues that maximizing profit is both an end and a means, that when taken from the private point, then it is an end but it becomes a means when a social viewpoint is assumed. A system of free markets is one where people are enabled to cooperate in their economic activities. Milton Friedman argues that in this way resources can be used for their most valuable purposes and be combined with other resources in a most effective manner. In his article, The Social Responsibility of Business is to make profit, he argues that claiming that for business to focus on social responsibility would be undermining free market. Further, he argues that most of the talk of social responsibility is directed to corporations. Corporate executives are responsible to their employers who have charged them with the responsibility of making a lot of money while conforming to societal rules (Friedman, 1970).
Proponents of profit maximization insist that by discharging social responsibilities, the corporate executive is spending his employers money in a way not intended thus facing the possibility of getting fired (Friedman, 1970). In addition, the difficulty of implementing social responsibility is evident from the fact that it requires people to do good at their own expense. Due to the issue of expense, proponents of profit maximization argue that by paying taxes, businesses furnish government with the money required for social responsibility such as poverty reduction and reduction of pollution thus managers should not assume the role of social responsibility as it is the governments role (Friedman, 1962). Opponents of profit maximization argue that rather than wait for long political processes to manage issues of responsibility it is better for private companies to contribute to this. Friedman (1962) criticizes social responsibility as strengthening the view that pursuing profits is immoral and should be under the control of external forces.
Business has made noteworthy achievements since the works of Friedman on profit maximization were published. Coupled with these achievements have been significant failures due to irresponsibilities on the part of businesses. Globalization has seen the growth of businesses into large corporations and some of these corporations were lauded for their efforts in social responsibility. These corporations, for instance Enron, Global Crossing, Imclone and others also had criminal and ethical misdoings (Brenkert,2004). The failure of these businesses has led to greater discussions on business ethics and the dangers of profit maximization as a sole goal for a business.
The accuracy of Friedmans ideas of separating society and business have been widely contested due to the fact that business decisions often have economic and social consequences. Businesses are therefore being urged to participate actively and positively in the companies that they operate in , for example by showing support for local organization, keeping prices well checked, hiring hardcore unemployed people, taking environmental protective measures and paying their taxes. Other corporate responsibility measures that businesses are encouraged to provide employees with safe working conditions, produce products that are safe and to be responsible in the marketing of their products (Brenkert, 2004).
The argument for profit maximization points out that those businesses that have failed have done so due to mistakes in their core business activities and not because of social responsibility issues. In addition where executives have been reported to have had very hefty salaries, the proponents of profit maximization state that this greed is not an issue of social responsibility (Brenkert, 2004). Another objection to the calls for social responsibility is the fact that most people view corporate responsibility activities as a public relations stunt which could disappear in harsh times or even be viewed with mistrust in good times. This is because the activities are seen as add-ons that really do not have much relation with the core activities of business. Examples cited with this objection are the many corporations that collapsed even when they conducted corporate responsibility activities openly.
There are those who still consider Friedmans ideas appealing especially where there is not much substance in the social responsibility activities carried out by firms. Often the money spent on promotion of such activities is usually more than what has been spent on the activity itself. This means that the activity is viewed as an investment that should yield some return (McWilliams and Siegel, 2001). Certain corporate responsibility initiatives such as the environmental ones which are aimed at saving energy or reducing carbon dioxide emissions also seem to have other benefits such as making work processes more efficient and reducing costs. Thus businesses tend to focus on this. Social issues that focus on good working conditions also have the effect of promoting security, stability and efficiency in the workforce which is beneficial to the organization (Brenkert, 2004).
A firm is likely to perform well depending on the interplay of organizational, physical and human resource thus for a firm to have competitive advantage it should meet certain criteria like value, inimitable, organization and rare (Petrick and Quinn, 2001). Based on this some businesses have used social resources to develop competitive advantage by developing relationships with customers, employees and communities using social responsibility activities (Buchanan and Huczynski, 2004). The use of social responsibility activities as risk management tools has also been documented which largely involves using these activities to improve the ethical climate of a firm and reduce costs such as employee fraud, bribery and theft and also to reduce possible liabilities in court (Brenkert, 1996).
Overall, in the analysis of society and business, the issue of social responsibility holds some appeal to businesses. For most businesses, social responsibility is about achieving competitive advantage. To expect business to be liberal in their giving to social responsibility activities is misleading. This is because most businesses exist for limited economic reasons and the resources in a competitive market are such that it may not be possible to achieve fairness in all social responsibility activities.
The profit maximization goal can be pursued in consideration of social and environmental factors. This way the business is able to remain profitable while at the same time having some degree of social responsibility towards its customers, employees and stockholders. The more successful companies generally try over periods of time to maximize the wealth of the stockholder. Wealth is the difference between the worth of a decision or an action and the investments necessary to achieve the benefits. The wealth maximization approach involves consideration for cash flow brought about by an action instead of the profits. In this approach, any action that has a net worth above zero should be taken.
Issues of social and ethical concern that play a part in the success of businesses in the hotel industry include concern for environmental factors, fair wages, equitable employment practices, support for further education of employees among others. A hotel that owns beach property may perhaps act in a socially mature way by allowing other people other than the guests in that hotel to have access to the beach. A restaurant that uses disposable supplies to wrap fast food may act in a socially responsible manner by ensuring that the neighborhood streets are kept free of waste discarded by customers. Generally social goals and financial goals tend to conflict. As a result managers with a profit maximization mentality opt to do away with the social goals especially where the social goals have a cost attached to them.
These social goals should however be worked at since most usually improve financial results in the long run. For example, the restaurant mentioned above may find considerable improvement in business due to deciding to clear the litter. Perhaps customers may want to patronize the restaurant in appreciation of its socially responsible action or simply because they want to eat in a restaurant whose neighborhood is clean. By allowing access to the beach even to unregistered guests, the hotel mentioned above might attract guests to its restaurants or guests who may use other facilities within the hotel. In both cases theres high likelihood that the net income far exceeds the cost of meeting a social or environmental goal, and thus benefits for both organizations have been accrued.
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