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Example research essay topic: Rate Of Return Social Responsibility - 1,538 words

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... to their relative incompetence to make moral decisions about the use of the firms resources. From Friedman's perspective, managers have no obligation to act on behalf of society if it does not maximise the value of the corporation for the shareholders. Only within the boarders of the law, managers should consider the social responsibilities of the firm. Friedman does not give further explanation to ethical custom in his essay, most authors believe that what Friedman means is that ethical custom is implied specifically within the law, and not applied next to the law. This means that Friedman considers only the first two dimensions of social responsibility, namely economic and legal.

The ethical dimension and certainly the philanthropic dimension are totally left out of his argument. As D. L. Swanson formulates it; Friedman stance is a contemporary articulation of neoclassical economic utilitarianism. Jeremy Bentham founded utilitarianism in the eighteenth century. He argued that only pleasure and the absence of pain are valued for their own sake.

John Stuart Mill proposed happiness rather than pleasure as the ultimate human good. According to Mill, happiness ads a qualitative dimension to human well-being that is missing in mere pleasure and the absence of pain. Their type of thinking is often presented as teleological; i. e. rightness or wrongness depends on the consequences of the action. It is contrasted with de ontological theory, which emphasises the action itself or its purpose.

The teleological theory can be divided into two main philosophies, Egoism and Utilitarianism. Egoism defines right or acceptable behaviour in terms of the consequences for the individual. Utilitarianism, as Egoism, is concerned with the consequences, but looks at the greatest good for the greatest number. Deontologists believe that equal respect must be given to all persons and that some things should never be done to maximise utility (profits). As said previously, Friedman is associated with the utilitarianism approach; achieving the greatest benefit for all those affected by a decision. R.

M. Green says that Friedman is wrong to believe that managers ethical responsibility can be limited to profit maximization. He suggests that both in terms of contractual obligations and the needs of society, managers cannot avoid paying attention to the ethical implications of their decisions. Similarly A. K. Sundaram and J.

S. Black characterise that managers responsibility is not just to maximise shareholder returns, because shareholders are not the only ones responsible for the firms existence. They say an alternative is the stakeholder model. Stakeholders are individuals or groups whose welfare can be seriously affected by corporations actions and therefore have a stake in managers decision making. Keith Davis, 1967: requires the individual to consider his or her acts in terms of a whole social system, and holds him or her acts anywhere in that system. Raymond Bauer, 1976: seriously considering the impact of the companys actions on society.

Stakeholders include the corporations financiers, its employees, customers or clients, suppliers, competitors, governmental bodies, the various communities and society at large, from the local to national to international, in which it operates. Whereas Friedman's shareholder theory concentrates on only one line of social responsibility, which is the responsibility from the manager to the shareholders (with the board in between), Green involves a whole network of relationships with the manager in the middle of this network. This network recognises the different social responsibilities of the managers towards the stakeholders. What it also recognises is the social responsibilities of the stakeholders towards the manager. Moreover firms use stakeholder analysis to identify societies expectations, such as wealth and job creation, and exterior responsibilities like sponsoring. When looking at Figure 4, Friedman's efficiency perspective is shown.

When both Shareholders and Society are hurt (Cell 1), no conflict arises from the mistakes. Also when both the shareholders and the society benefit (Cell 4) from the decision made, there is only a low possibility for conflicts to arise. Though when according to Friedman, the shareholders hurts and the society benefits (Cell 3), the manager made a mistake and is managerially responsible. According to a report released by the Business Roundtable in 1981, this means that according to the stakeholder model, the manager is socially responsible.

Cell 2 represents Managerial responsibility according to Friedman's efficiency perspective, at the same time the stakeholder model would argue that the manager is acting socially irresponsible when society is hurt. The Business Roundtable opinion is that: Business is to serve the public interest as well as private profit. Its opinion is underlined by saying that managers should weight the conflicting demands of all stakeholders and that customers have a primary claim. Besides these models there are two more theories on social responsibility: The Corporate Natural Rights Theory and Business Benefits Theory. Looking at CNRT theory, Den Us (1984) argues that there is no necessity for companies to seek to maximise profits and that owners do not seek maximum profitability, but rather wish only a certain rate of return. This theory says that managers responsibility to shareholders is to achieve a certain rate of return on their investments, can be seen as natural or moral responsibilities.

Furthermore in pursuit of profits, companies should consider the rights or moral space of individuals. The business benefits theory is a rather new theory; it emphasises that social responsibility creates distinctive business (organisational) advantages. This theory says that a respectable greater value of corporate social responsibility leads to improved business performance. This can be achieved by higher employee involvement, cutting waste, not making tests on animals, etc. The business benefits theory sees social responsibility as an investment not as a cost. However there are some concerns with this theory; it weakness lies in that this theory is not such a coherent theory, it relies on, the often failing, performances of companies which use (d) social responsibility to their advantage.

Concluding Friedman's efficiency perspective, we must first look at the basis of this perspective. The basis that Friedman has taken for his perspective is a free market environment. This is Friedman first mistake; there is no such thing as a free market. Friedman also stresses democratic processes.

In Friedman's essay his first argument states that a corporate executive is an employee of the owners of the business. The separation of ownership (shareholders) and the control of the organisation (managers) characterise the corporate form of an organisation. Above all, his primary responsibility is to the owners of the business. Friedman: the manager is the agent of the individuals who own the corporation or establish the eleemosynary institution, and his primary responsibility is to them. However Friedman does see that when investing in local communities it can generate the greater purpose of easing recruitment problems, improving work behaviour at work, etc.

According to Friedman, such actions are entirely justified while the companies do it for their primary interest, which is making as much profit as possible. As Friedman acknowledges himself, businesses do have impact on society and they have responsibilities towards not only shareholders, but also consumers, suppliers, society as a whole, etc. However according to his theory corporate environmental expenditures are viewed only as a cost or tax to conduct business in society, and never as an investment in developing a competitive advantage. Moreover corporate laws exist and thus corporations and organisations can be held responsible for their actions. The Stakeholder perspective does have some drawbacks as well; the responsibilities to the stakeholders generally conflict with one another. Therefore the decision making is a complex process; managers should firstly define the various (moral) obligations owed to the stakeholders and how they can resolve the conflicts among them.

Looking at the corporate natural rights theory, it says that a certain rate of return is wished for the corporations and that this is their moral obligation to the shareholders. The question nevertheless is what happens with the remaining investments of the shareholders. However together with the Business Benefits theory it puts everything in place; distinct business (organisational) advantages are met by putting the investment in the right places, which generates competitive advantages. Still I think Friedman's efficiency theory provides enough moral and responsible behaviour, businesses are always looking for processes that makes them more efficient and profit making. One way could be to introduce social responsible actions, however businesses should not pursuit these actions if they will not increase their profits. BIBLIOGRAPHY ANDERSON, P. , TUSHMAN, M.

L. , 1997. Managing Strategic Innovation and Change. New York: Oxford University Press BLACK, J. S. , SUNDARAM, A. K. , year.

The International Business Environment, Text and Cases CANNON, T. , 1994. Corporate Responsibility. London: Pitman publishing DESJARDINS, J. R. , McCALL, J. J. , 1994. Contemporary Issues in Business Ethics. 2 nd ed.

Belmont: Wadsworth Publishing Company FERRELL, O. C. , FRAEDRICH, J. , 1997. Business Ethics, Ethical Decision Making and Cases. 3 rd ed. Boston: Houghton Mifflin Company FREDERICK, R. E. , 1999. A Companion to Business Ethics.

Oxford: Blackwell Publishers FRIEDMAN, M. , FRIEDMAN, R. 1962. Capitalism and Freedom. Chicago: University of Chicago Press GREEN, R. M. , 1994. The Ethical Manager, a New Method for Business Ethics. New York: Macmillan College Publishing Company JOHNSON, G. , SCHOLES, K. , 1999.

Exploring Corporate Strategy. 5 th ed. Harlow: Pearson Education Ltd.


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Research essay sample on Rate Of Return Social Responsibility

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