“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” Warren Edward Buffet, Entrepreneur.
Social responsibility of business is a very contradicting topic and there clearly can be no perfect answer as to what extent corporations should employ it. Milton Friedman and Ivar Kolstad have contrasting opinions on the issue, and both of them listed weighty arguments for their positions. In this essay I would like to express my view on the problem presented in the articles.
The argument can in fact be called “shareholders vs. stakeholders”. Management is bound to be responsible to shareholders; otherwise there will be some other management who will be responsible to them. In this respect, management does not have a choice. But they do have a choice whether or not to be responsible to other stakeholders as well, that is, employ some general and non-legislative principles of doing business.
Shareholders are central in Milton Friedman’s opinion. He believes that a company exists in order to satisfy the shareholders and give them the most possible out of it. I cannot agree with this view and I think that it is quite narrow, because most companies are so much more than just profit-generators for stockholders. Of course companies need to make profit - otherwise they cannot survive, but owners should indeed feel the difference between fair profits, fair return on their money, and unlimited profits created at someone’s expense.
Let’s look at managers’ choice between maximizing profits and caring for stakeholders from the perspective of different schools of normative ethics. Kantian deontology states that there are actions that are always good and actions that are always bad, and humans should act according to their moral duties, not to selfish motives and wishes. In the world of capitalists, this theory is quite hard to apply, since businesses inherently pursue the goal of profit generation, which is selfish by its nature. However, an idea of universal law can be used to evaluate moral actions: if one manager chooses to deceive his customers, let’s assume that all managers choose to deceive their customers. What would the result be? All customers would be deceived and would no longer trust the companies. So when making decisions, Kant suggests thinking in terms of universal laws. The opposing theory – consequentialism, suggests that the moral value of an action only depends on its consequences. However, let’s imagine that an employee of a nuclear power station decides to talk to his friend on the phone instead of controlling the process. If everything goes right and no catastrophe happens, can his action be considered ethically good? In this sense, the theory is not very useful. However, if we are talking about managers’ decisions, they should always think about consequences that their actions can cause. Another theory is utilitarianism, which evaluates the moral value of an action in terms of the summed happiness of all members of society that resulted from it. Shareholders make themselves “happy” by maximizing profits at any expense, but a whole lot of stakeholders are left “unhappy”. Therefore, owners of the company minimize the good in society by maximizing profits. On the other hand, a company can make a lot of people deliriously happy by giving out its products for free, and soon go bankrupt. So where does the thin line lie between maximizing customers’ value while staying financially sound and giving up profit opportunities for ethical motives, getting no or a very moderate return? It’s a very hard question, but in my opinion, companies should try to avoid doing harm to customers, employees and environment whenever they can. Another school is called classical school, and it states that the moral value of an action depends on its nature, motives and consequences. In my opinion, this theory is the most sensible one, because it comprises all other...
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