MANAGING IN THE GLOBAL ENVIRONMENTFORMATIVE ASSIGNMENT

MATTAR - MÜLLER - NEUMANN

Friday, 13 July 12

MILTON FRIEDMAN: “THE SOCIAL RESPONSIBILITY OF BUSINESS

IS TO INCREASE ITS PROFITS.”

• Friedman views are that any socially responsible activity will be at the expense of stakeholders, being the clients, employees or owners who will ultimately pay for it.

• He also sustains that managers as executive –and not as owner– are not entitled to pursue “social responsible” ends (Principal – Agent theory).

• Finally he discuss that such actions are a violation of important democratic principles, it is the government who should impose taxes, and decide how to allocate funds.

• Ultimately, Friedman’s view is that creating wealth, the companies are making a valid contributions, whereas deciding how to allocate such wealth is the society’s responsibility: the people and (on their behalf) the government,

Friday, 13 July 12

FURTHER DISCUSSIONBASED ON FRIEDMAN’S VIEWS

• 1 The nature of profits:Can profits function as the sole end for a company?

• II The impact of social responsibility on the business(and on profits).

• III Is striving for profits a valuable business mission? (raison d'être for a business).

Friday, 13 July 12

FREDMUND MALIK THE BUSINESS OF MANAGEMENT

• Malik argues: It is true, businesses need profits but can profiting be an end itself?

• Management for Malik is not the ability to make profits, it is the ability to transform resources into utility.

• The most important indicator for the success of a business should be costumer satisfaction.

• Malik defines profit by its functionsa measure for effectivity –doing the right things– and efficiency –doing things right.

• He poses that the business model has to be formulated in the business mission. Its 3 elements should be:

1. What do customers need?

2. What can we do better than others?

3. What do we believe in?

Friday, 13 July 12

THE BUSINESS FIRST OF ALL HAS TO LOOK OUTSIDE OF ITS BOUNDARIES

• Social responsible projects can therefore be one way to create a higher customer satisfaction.

• Environmental friendly behaviour can avoid taxes and legal claims or reduce future costs. Being close to social developments can therefore lead to competitive advantage. In this regard it is the obligation of the business to engage in “social responsibility”

• Social commitment can attract quality employees or make the employees proud of their company (which might lead to higher performance).

• Malik argues that social responsibility should always be subordinated to the business mission and in accordance with it; therefore it can be an aspect of the success of the business, but should not be an end in it self.

Friday, 13 July 12

ANEEL KARNANI

THE GRAND ILLUSION• Karnani argues that corporate

social responsibility is either irrelevant or an ineffective ‘illusion’

• Karnani makes this argument on the basis that managers and business will behave in a manner deemed by society as responsible where these needs are aligned with profit producing behaviours

• In situations where public interest are in direct opposition to shareholder interest, managers are ‘unlikely to act voluntarily’ where it is impossible to profit by doing a public good

• Karnani separates these two areas into the zone of opportunity and trade-off

Friday, 13 July 12

Corporate social responsibility & efficient markets• Karnani’s argument supports

Friedman’s view, in that the driving influence on a business’s behaviour should be the pursuit of profit. Any resulting behaviour that is deemed as being responsible and positive in a societal context should have been initiated by market forces and moves to satisfy changes in consumer demand.

• This argument is illustrated with the example of changes by fast food companies such as McDonald’s to serve healthier foods in their outlets. This move would be deemed as positive for society, but in itself was driven by profit maximisation, with McDonalds acting in self-interest.

• This ‘zone of opportunity’ exists where a firm can maximise profits by acting in a way that is seen as being socially responsible. However as Karnani points out, the firm will act in this way because it is the efficient way to act in a market economy, not because society calls for it.

Friday, 13 July 12

THE TRADE OFF AND MARKET FAILURES

• To illustrate the dangers in relying on corporate social responsibility to repair circumstances of market failure, Karnani reflects on pervasive issues including poverty and pollution, where solutions are likely to be in direct opposition to profit maximisation.

• He argues in favour of Friedman’s view that whilst managers, employees, and shareholders may offer support for such issues in their personal capacity, any meaningful attempts at solving such problems from a business perspective would be in direct contradiction with business objectives.

• The ultimate solution required to balance business behaviour in scenarios of market failure must come in the form of government regulation or civil activism rather then the sole actions of managers.

Friday, 13 July 12

CONCLUSIONNeither profits or corporate responsibility are the raison d'être of the business. While social responsibility can be an important aspect of the business mission only a focus on the business core activities (as pointed out by Merck) will deliver true value to the

society in a fair and democratic way.

Friday, 13 July 12