The Ethics Emphasis: A Misallocation of Business Resources
“There is one and only one social responsibility of business-to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”
Milton Friedman, a Nobel-Prize winning economist and strong advocate of free markets, summed up his view on ethics and corporate responsibility with those few sentences. I agree with Dr. Friedman wholeheartedly and for the most part, support the notion that “Companies should not spend time and money on business ethics.”
What is a corporation? According to Webster’s, a corporation is “a body formed and authorized by law to act as a single person although constituted by one or more persons and legally endowed with various rights and duties including the capacity of succession.”[i] Within this definition lies the problem: the duties and rights of a corporation are loosely defined, and up to the interpretation of individuals.
The word corporation is often used interchangeably with “company,” which is defined as: “an association of persons for carrying on a commercial or industrial enterprise.”[ii] The word “business,” as a noun, is also used to describe the concept of a company/corporation, and can be defined as: “dealings or transactions especially of an economic nature.”[iii] With these several definitions, we can start to deduce what the core duties and responsibilities of corporations are: They must be economic and commercial in nature. Because economic dealings can usually be simplified into increasing, maintaining a certain amount of, or losing money, we can assume that anyone connected with economic and commercial dealings would prefer to above all else make money, assuming true the concept of rational self interest. Simply, nobody in business gets into business to lose money or to maintain the same amount. Similarly, corporations are not formed to lose or maintain monies; they are formed to make money and generate wealth for investors. As such, all core duties and rights of a corporation must be limited to the scope of making money. Any other use of corporate resources is a misdirection of those resources; incurring the opportunity cost of possible forgone revenues or increased expenses can reduce returns to investors, whom expect a corporation’s leadership to do all that they legally can to increase returns on their investments. To do anything else is a breach of their trust, and therefore in my opinion, unethical.
What are the components of the new trend of business ethics? They pertain chiefly to two issues: social value/impact, and environmental value/impact. A new term, “Corporate Social Responsibility,” has emerged in recent years to describe the former. Kim Kercher, in the Corporate Governance E-Journal of Bond University, explains the meaning of the term as: “Corporate Social Responsibility (CSR) is associated with the conduct of corporations and in particular whether corporations owe a duty to stakeholders other than shareholders.”[iv] In this discussion, society as a whole represents the non-shareholder stakeholders. Do corporations owe society anything at all?
As we explored earlier, the interests of business are financial and commercial. Corporations undertake certain activities in order to generate return for the investors. This is the chief duty of corporations, but in doing this they serve the best interests of society: produce goods which society will value. This is not an inherent duty per se, but an action which is necessary to be achieved when corporations expect citizens to give them their money. Businesses provide us with what we want, and we give them what they want. Companies do not do this out of the collective kindness of their hearts, but because it provides the means to their end: make money. In achieving their primary...
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