The The Firm’sFirm’s Social Social Responsibility Responsibility

ByBy

Sveinn EldonSveinn Eldon

Does the firm have social responsibilities?Does the firm have social responsibilities?

The firm has legal responsibilitiesThe firm has legal responsibilities The CEO is responsible for running the The CEO is responsible for running the

firm. He is hired by and firm. He is hired by and reports to the reports to the board of directors.board of directors.

The board of directors is elected by the The board of directors is elected by the shareholders and oversees the running of shareholders and oversees the running of the firm. The board represents the the firm. The board represents the shareholders and is supposed to see to shareholders and is supposed to see to that their interests are paramount. that their interests are paramount.

For whose benefit is the firm?For whose benefit is the firm?

The classical view is that firms exists to The classical view is that firms exists to bring income to their owners.bring income to their owners.

The so-called stakeholder view of the firm The so-called stakeholder view of the firm maintains that the firm exists in the maintains that the firm exists in the interests of its various so-called interests of its various so-called ’stakeholders’.’stakeholders’.

These stakeholders are: emploees, These stakeholders are: emploees, customers, suppliers, creditors, customers, suppliers, creditors, shareholders, society, the world.shareholders, society, the world.

Social Responsibility...?Social Responsibility...?

Those who maintain that the firm has Those who maintain that the firm has social responsibilities maintain:social responsibilities maintain:

The firm should always operate on an The firm should always operate on an ethical level much higher than the law ethical level much higher than the law requires.requires.

It should donate money to charities and to It should donate money to charities and to ’good causes’.’good causes’.

Should strive to maximise the quality of Should strive to maximise the quality of life for its emploees, both inside and even life for its emploees, both inside and even outside of the firm.outside of the firm.

More social responsibilities...More social responsibilities...

Take the social desirability of its Take the social desirability of its operations into account.operations into account.

Should use its resources to address Should use its resources to address social problems in the communities social problems in the communities where it operates. where it operates.

Should act as a good responsible Should act as a good responsible citizen of the socities where it citizen of the socities where it operates.operates.

Are firms moral agents, like persons are?Are firms moral agents, like persons are?

Is the moral responsibility of the firm different Is the moral responsibility of the firm different from the moral responsibility of the persons in from the moral responsibility of the persons in charge of it? How can a firm be a moral agent? charge of it? How can a firm be a moral agent?

Is it not the persons in charge of the firm who are Is it not the persons in charge of the firm who are moral agents and have moral responsibilities?moral agents and have moral responsibilities?

But firms have legal rights and legal duties, so But firms have legal rights and legal duties, so why can they not be seen as having moral duties why can they not be seen as having moral duties as well? Duties which are not identical with the as well? Duties which are not identical with the moral duties of the perons in charge of them? A moral duties of the perons in charge of them? A firm may be seen as having a moral duty to firm may be seen as having a moral duty to support a cause even if its CEO is not seen as support a cause even if its CEO is not seen as having that duty. having that duty.

May it profit the organization...May it profit the organization...

The classical view maintains that the goal of the The classical view maintains that the goal of the organisation is to bring income to its owners.organisation is to bring income to its owners.

Firms should only engage in business activities or Firms should only engage in business activities or business related activities.business related activities.

Those who run the firm do not have the mandate Those who run the firm do not have the mandate from the shareholders to engage in any other from the shareholders to engage in any other activities.activities.

Firms are not organised to deal with social issues, Firms are not organised to deal with social issues, and consequently are not efficient in dealing with and consequently are not efficient in dealing with them. That is best left to others.them. That is best left to others.

Hello big spender...Hello big spender...

Other peoples money.Other peoples money. The firm managers are not managing their own The firm managers are not managing their own

money, but other peoples.money, but other peoples. If they are spending it on social causes, they may If they are spending it on social causes, they may

be spending it in different ways than the owners be spending it in different ways than the owners of the money would have chosen to spend it. The of the money would have chosen to spend it. The managers may, after all be spending it according managers may, after all be spending it according to their own personal preferances. Should it not to their own personal preferances. Should it not be left to the owners of the money to make the be left to the owners of the money to make the decisions on if and how it is spend on social decisions on if and how it is spend on social issues? Who is to say that the managers spend issues? Who is to say that the managers spend the money ’better’ on social issues than would the money ’better’ on social issues than would the shareholders themselves, individually?the shareholders themselves, individually?

’’What is good for General Motors is good for What is good for General Motors is good for America!’America!’

Should the law not define the borders of Should the law not define the borders of acceptable corporate behaviour?acceptable corporate behaviour?

Why should the firm worry about its Why should the firm worry about its behaviour as long as it is legal? behaviour as long as it is legal?

Yes, but good ’brand management’ is also Yes, but good ’brand management’ is also good business sense.good business sense.

By looking well after the reputation of the By looking well after the reputation of the firm and its image you look well after the firm and its image you look well after the interest of the shareholders.interest of the shareholders.

Too far gone...Too far gone...

Does it make good business sense for a Does it make good business sense for a firm to reduce pollution to levels lower firm to reduce pollution to levels lower than required by law?than required by law?

Or is this a simple cost/benefit excercise? Or is this a simple cost/benefit excercise? In other words, it would make sense if it In other words, it would make sense if it would improve the repution of the firm would improve the repution of the firm with its target customers to the extent with its target customers to the extent that it would increase revenue and profit that it would increase revenue and profit suffiently to more than offset the cost of suffiently to more than offset the cost of reducing the pollution. Or is the only reducing the pollution. Or is the only objective be to reduce the pollution, not to objective be to reduce the pollution, not to increase sales and profit?increase sales and profit?

Relationships matter...Relationships matter...

Relationships matter in the world of Relationships matter in the world of business.business.

The firm has a direct relationship with all The firm has a direct relationship with all its stakeholders.its stakeholders.

A good realtionship is not created over A good realtionship is not created over night, it takes time...night, it takes time...

And it takes sacrificies by all concerned. If And it takes sacrificies by all concerned. If the firm is not ready to make sacrificies for the firm is not ready to make sacrificies for the sake of a relationship, why should the the sake of a relationship, why should the other side?other side?

Birds of feather....Birds of feather....

Firms as well as individuals are known by the Firms as well as individuals are known by the company they keep.company they keep.

A firm that gets a bad reputation is avoided by A firm that gets a bad reputation is avoided by other firms because they are afraid that they other firms because they are afraid that they might also get a bad reputation.might also get a bad reputation.

Acceptable behaviour standards are oblique and Acceptable behaviour standards are oblique and the knowledge of these standards is often what the knowledge of these standards is often what distinguishes ’outsiders’ from ’insiders’ in many distinguishes ’outsiders’ from ’insiders’ in many industries.industries.

Playing the game according to these often Playing the game according to these often oblique rules, may not always be mandatory but oblique rules, may not always be mandatory but is certainly is necessary for long term survival.is certainly is necessary for long term survival.