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Why Should Corporations Have Social Responsibilities

There are three broad types of arguments for situating businesses, at least large and developed ones, inside an ethical framework of expansive social and environmental responsibilities:

  1. Corporations are morally required to accept those responsibilities.
  2. The existence of externalities attaches companies, in operational and economic terms, to those responsibilities.
  3. Enlightened self-interest leads to voluntarily embracing those responsibilities.

The Moral Requirement Argument

The moral requirement that business goals go beyond the bottom line to include the people and world we all share is built on the following arguments:

  • Corporations already have a stake in the broader social environment and the ethical challenges that define it. For example, when manufacturers generate toxic waste, they make a statement about the safety and well-being of individuals who live nearby. If they take the cheapest—and riskiest—route in order to maximise profits, they are not evading the full issue of social responsibility; they are implying via their actions that the townspeople’s well-being is secondary. That is an ethical position to take. It may be right or wrong, reasonable or not, but it is unquestionably ethical. In other words, choosing not to get part in ethical debates is an ethical option. Finally, because businesses are inextricably related to ethical issues, whether they like it or not, they are obligated to engage in some type of corporate social responsibility.
  • The ability for corporations to be involved in the efficient solutions of large social problems implies an obligation for well-established, successful, and powerful corporations. No matter who or what we’re talking about, having money and power comes with a responsibility to give back to those who don’t have it. Many people believe that the wealthy have a moral obligation to give back to society in some way, for as by establishing a foundation to support education. Why do people say that? Because they know what’s coming. What’s being claimed here is that businesses have the same responsibilities as individuals.
  • Businesses rely on a variety of stakeholders in addition to its owners and shareholders. They require suppliers of supplies, labourers, a town in which the workplace may be located, consumers who purchase, air to breathe, water to drink, and nearly everything else. Because a corporation is reliant on all of these things, the argument goes, it is unavoidably responsible—to a degree—for their wellbeing and protection.
  • Because businesses contribute to the broader world’s problems, they are obligated to assist in resolving them. What types of issues are created? Toxic waste is created in industrial chemical factories. Even if it is disposed of neatly, barrels of poison remain buried somewhere and a hazard, however tiny, remains. Similarly, businesses that lay off employees exacerbate social tensions. While the dismissal may have been necessary or entirely deserved, the reality remains that problems are created, and with them comes an obligation to contribute to mitigating their bad repercussions.

Conclusion

Taken together, these considerations explain the view of any firm as much more than a source of economic revenue. Businesses become collaborators in a vast world of interrelated challenges and shared responsibilities for resolving them.

The Externality Argument

Externalities are the second type of argument in favour of corporate social responsibility. These bind companies not morally, but operationally, to societal duties. In economics, an externality is a cost of an item or service that is not included in the price. For instance, if a corporation’s plant produces large air pollution, resulting in a high rate of upper respiratory illnesses in the adjacent town, a disproportionately high number of teachers and police officers (among others) will miss work during the year.

Substitute teachers and replacement officers will be required, and the expense will be shared by everyone in town as a result of their increased tax bill. The firm that owns the polluting plant earns the entire value of its products but does not bear the whole cost of production, as the broader public bears a portion of the pollution burden. This is viewed as unjust by many.

Another example is a corporation that underfunds its pensions. The company may close, distributing final earnings to stockholders and denying retired workers their monthly cheques. In the end, the general public pays for labour costs that should have been borne by stockholders.

Externalities aren’t necessarily negative. For example, the iPhone’s map shows real-time traffic congestion. Apple invested money in developing this feature, and they get paid when an iPhone sells. Apple doesn’t gain anything from drivers who don’t buy an iPhone but nonetheless profit from it: those who get to their destination faster because everyone with an iPhone is taking a different route. More, everyone benefits from cleaner air when traffic jams are diminished, but again, that part of the benefit, which should channel back to Apple to offset its research and production costs, ends up uncompensated.

Whether an externality is negative or positive—whether a company’s bottom line rises or falls with it—a strong argument remains for broad corporate responsibility wherever an externality exists. Because these parts of corporate interaction with the world aren’t accounted for in dollars and cents, a broad ethical discussion must be introduced to determine what, if any, obligations or benefits arise.

The Enlightened Self-interest Argument

The third kind of argument in favour of corporations as seats of social responsibility grows from the notion of enlightened self-interest. Enlightened self-interest means businesses take on broad responsibilities because, on careful analysis, that public generosity also benefits the company. The benefits run along with a number of lines:

  • Corporations perceived as socially engaged may be rewarded with more and more satisfied customers. TOMS shoe is an excellent example. For every pair of shoes they sell, they give a pair away to needy children. No one doubts that this is a noble action—one displaying corporate vision as going beyond the bottom line—but it’s also quite lucrative. Many people buy from TOMS because of the antipoverty donations, and those customers feel good about their footwear knowing that a child somewhere is better off.
  • Positively impacting society or the environment may help attract top talent. Job happiness is important since you spend eight hours a day at work. As a result, job seekers may be drawn to a company that does good in the world. This can be said negatively. Some companies with a bad image may struggle to attract talented individuals even at high salaries because employees just do not want their names connected with the company. The CIA is an odd example to include here. Due to the nature of the CIA, some people will take a lower-paying job offer, while others may refuse to work there even if it is their best offer.
  • Organizations taking the initiative in regulating themselves in the name of social betterment may hold off more stringent requirements that might otherwise be imposed by governmental authorities. For example, a lab fabricating industrial chemicals may wrap their toxic waste is not only the legally required single, leak-proof barrel but a second as well, to positively ensure public safety. That proactive step is not only good for the environment, but it may help the bottom line if it effectively closes off a regulatory commission’s discussion about requiring triple barrel protections.

Enlightened self-interest starts with the belief that there are many opportunities for corporations to do well (make money) in the world by doing good (being ethically responsible). From there, it’s reasonable to assert that because those opportunities exist, corporations have no excuse for not seeking them out, and then profiting from them, while helping everyone else along the way.

One fundamental question of enlightened self-interest is this: “Are corporations profitable because they perform good actions, or are they profitable because they do good deeds?” This distinction may be insignificant in terms of pure implications. However, if the fact is that social good is done solely for financial gain, some may argue that corporate social responsibility has devolved into a sophisticated ruse used to maximise profits by misleading consumers about a business’s intentions.

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