Topic 5 Social Responsibility and Organization

 

Historical Views of Social Responsibility

Views of social responsibility held by organizations, the government and the public at large have changed dramatically over the past 100 years. There have been three critical turning points in the evolution of social responsibility.

1.      The Entrepreneurial Era

2.      The Depression Era

3.      The Social Era 

The Entrepreneurial Era (1800s) 

“A period of time during the late 1800s when a few business owners built empires in industries in the United States”

·         John D Rockefeller

·         Cornelius Vanderbilt

·         J. P. Morgan

·         Andrew Carnegie

Empires were built and fortune made in industries such as iron and steel, oil and banking.

Corruption, blackmail and tax evasion were common, and the public outcry forced the government to define a relationship between business, government and society, indicating that business had a role to play in society beyond pure maximization of profit. 

The Depression Era – (1929 – 1930s)

A period of time from 1929 through the 1930s during which the public blamed business for economic problems and sought to regulate business through government to prevent such problems recurring.

The Stock market crash of 1929 was in part, the result of irresponsible financial practices by large organizations in the United States and their behaviour left small businesses and investors unprotected.

Legislation created the Securities and Exchange Commission in 1934 in the US and during this era, the Australian Stock Exchange was also created as a means of regulating and regularizing the trading of stocks and financial instruments.

The social responsibilities of organization was again brought to the forefront as government insisted that organizations take an active role in promoting the general welfare of the public. 

The Social Era – 1960’s

The period of great social unrest during the 1960s during which business was seen as responsible for social problems and called on to help solve these problems.

·         Civil Rights movements.

·         Anti-war sentiments (opposition to the Vietnam war).

·         Criticism of authoritarian government

It was during this era that Western nations re-examined their values, priorities and goals, tighter restrictions on pollution, health warnings on cigarette packets, banning of carbon emission products and household waste.

·         Tighter restrictions on pollution, health warnings on cigarette packet and banning of carbon tetrachloride as a household drycleaner all grew from concerns that were raised during this period. 

·         Corporate collapses of firms such as Enron, Andersen, HIH, Ansett Australia and United Medical Protection have provided further grounds for focusing on ethical behavior in organizations. 

 

Questions on Social Responsibility

This growing trend towards social responsibility raises two important questions:

a.       To whom is business responsible

b.      Who in an organization is ultimately accountable for the organization’s practices?

We will look at these 2 important questions under Areas of Social responsibility.

Neoclassic economics depicts that human decision-maker as self interested, rational and materialistic, and assets that self-interested motives lead to optimal social outcomes. Some critics however have argued that this approach is both excessively selfish and amoral, since it ignores both human nature and the moral dimension of human motivation.

Socioeconomics call upon managers to consider their organizations missions and operations in terms of responsibilities to the community – not merely in terms of the sustainability of financial profits. Such a call fits well with the increasing attention being paid to the role of values in management.

Example: Managing only to increase stakeholder wealth may satisfy shareholders but it may be at the expenses of other stakeholder such employees loosing their jobs through downsizing. 
 

Challenges Towards Social Responsibility

'The idea of corporate social responsiveness conceptualizes the more strategic and processual aspects of Corporate Social Responsiveness (CRS), as in how corporations actively respond to social concerns and expectations.' (Crane, Matten, 2007)

Today corporations are faced with the challenges and coming up with strategies to meet the expectations of the government, communities and other stakeholders.

·         Emphasis on protecting the environment may not allow business owners to realize sufficient returns on their investments. 

·         The task of management is to align corporate objectives and practices with the community’s values and needs. 

·         Organizations may exercise social responsibility towards the natural environment and towards the general social welfare. 

·         Social entities closer to the organization have a clear and immediate stake in what the organization does, whereas those further removed have an ambiguous and long-term stake in the organization and its practices.  

·         Remember Task Environment of organizations as those individuals, groups or organizations that directly affect a particular organization but are not part of the organization.

 

Areas of Social Responsibility or Responsiveness

Another term used for those people and organizations who are directly affected by the practices of an organization and have a stake in its performances are known as Organizational Constituents. Major organizational constituents are;

·         Creditors

·         Customers

·         Local community

·         Suppliers, Employees

·         Interest groups

·         Trade Associations

·         Owners/Investors

·         Courts, Colleges and University, Foreign Government, State/Federal government, Local Government. 

The interests of people who owns and invest in an organization are affected by virtually anything the firm does. If the firm’s managers commit criminal acts or violate acceptable ethical standards, the resulting bad press and public outcry will be likely to hurt the organization’s profit and share prices.

Organization also have a responsibility to their creditors. If poor social performance hurts an organization’s abilities to repay its debts, those creditors and their employees will suffer.

A firm that engages or is perceived to engage, in socially irresponsible practices towards come of its constituents is asking for trouble.

There has been cases where Shareholders demanded removal of its management team. Sometimes the media reports of alleged improper conduct by management leads to a decline in the company’s share prices.

Once new management comes it and able to reassure its shareholders with new measures, company shares normally bounce back. 

On the other end, you see management of companies treated with respect;

a)      For treating their employees and suppliers with dignity and respect.

b)      For playing an active role in important trade role association.

c)      For maintaining good relationship with government and regulatory bodies.

d)     For explicitly seeking to be regarded as genuinely good corporate citizens. 

It is in fact becoming increasingly common these days for firms to make an effort to take a socially responsible stance towards three main groups.

• Customers
• Employees
• Investors.

Firms are increasingly listening to their customers concerns and considering to be fair and reasonable in their dealings with their employees, by encouraging their participation in the company’s future direction.

Firms are more openly reporting financial and other company information, even in excess of what is legally required by accounting regulations.

Concept of reporting has moved from just one type of information to additional information.

·         Traditional financial outcomes

·         Social Outcomes

·         Environmental Outcomes

 

Natural Environment Issues and Its Outcomes

A second critical area of social responsibility relates to the natural environment. Not long ago, many organizations discriminately dumped sewerage, waste products from production and rubbish into creeks and rivers, into the air and on vacant land.

Today many laws regulate the disposal of waste materials. Firms are becoming more socially responsible in the release of pollution materials. More is still to be done in this area.

Companies need to develop safety policies that cut down on accidents potentially disastrous  environment results.

Example: After Exxon oil tanker spilled millions of gallons of oil off the coast of Alaska a few year back, the company has adopted new and more stringent procedures to keep another such disaster from happening.

Most companies around the world regularly update their contingency plans in respect of environmental pollution accidents. In addition to treating constituents and the environment responsibly, society are now looking at organizations to promote the general welfare of society.

This may include making contribution to charities, philanthropic organization and non-profit organizations in support of medical research and treatment, education and arts. Some people believe that businesses should also act to correct (or at least contribute to) the political inequities that exist in the world.

Arguments For and Against Social Responsibility

There seem to be little disagreement about organizations becoming more socially responsible however, in reality those who oppose this trend uses several arguments against social responsibilities.

Arguments Against Social Responsibility;

•         The purpose of business is to generate profit for owners.

•         Involvement in social programs gives business too much power.

•         There is potential for conflict of interest.

•         Business lacks the expertise to manage social programs.

Arguments for Social Responsibility;

•         Business creates problems an should therefore help solve them.

•         Corporations are citizens in our society.

•         Business often has the resources necessary to solve problems.

•         Business is a partner in our society, along with the government and the general population. 

Arguments for social responsibility view business as corporate citizens, those against essentially see business as independent, self-seeking institutions focused on securing business objectives, including profit.

People who argue in favour of social responsibility claim that because organizations create many of the problems that needed to be addressed, such as air and water pollution and resource depletion, they should play a major role in solving them.

There is also an argument that because corporations are legally defined as ‘fictitious persons’ with most of the same privileges as private citizens, they should not be excused from their obligations as corporate citizen.

Advocate for social responsibility point out that while government departments have limited budgets to assist with maintaining the environment, organizations should have surplus revenue available to help in environment degradation.

Another more general reason in support of social responsibility is profit itself. Organizations that make clear and visible contributions to society often do so with the outcome, if not the intention, of gaining an enhanced reputation, and thus creating or boosting market share for their product or services.

Support for charities, especially if well publicized, is seen by some organizations as both meeting their responsibilities to the community and supporting their public images – with the hope of increase in sales.

Many firms are now becoming more sophisticated in their approach. Community partnership programs – which some have argued will widen the interpretation of social responsibility thus distracting the firm from its basic mission of serving it owners.

Other arguments is the potential of personal conflict of interest especially when giving to charity. One manager may support a charity in return for something. 

Organizational Approach to Social Responsibility

Organizations can adopt a variety of approaches to social responsibility, ranging from social obstruction to social contribution.

1.      Social Contribution (Highest)

2.      Social Response

3.      Social Obligation

4.      Social Obstruction (Lowest) 

Social Contribution refers to organization that take to heart the arguments in favour of social responsibility. They view themselves as citizens in a society and proactively seek opportunities to contribute.

Social Response refers to organizations that meets its legal and ethical requirements but will go beyond these in selected cases. Such firm voluntarily agree to participate in social programs, but need to be asked to do so.

Social Obligation refers to organizations that will do everything required of it legally, but nothing more. This approach is most consistent with the argument against social responsibility. Manager in this type of approach argues that their responsibility is to generate profit.

Example: Cigarette companies include health warning on their packets in countries required by law whereas in countries with no laws they’ll exclude the warning.

Social Obstruction refers to organizations that will do as little as possible to solve social or environmental problems. When they cross the ethical or legal line that separates acceptable from unacceptable practices, their typical response is to deny or cover up their actions. 

Organizations can be seen as using one of the four approaches and sometimes may not always fit neatly into one category.

The Government and Social Responsibility

• In our historical overview, we noted the Government’s increasing part in shaping the role of the organizations in temporary society.
• The relationship between organizations and government is two-way, however, organizations and the government use several methods in their attempts to influence one another.

How Government Influences Organizations

Government attempts to shape social responsibility practices through direct and indirect channels. Direct influence is usually through regulation, whereas indirect influence can take a number of forms, notably through taxation policy.

Regulation - The government directly influences through regulation or through an Act enacted through Parliament. These Act and Regulations are administered by the arms of government through national departments and government agencies.

Example of Government enacted laws and regulation; ICCC, the Australian Securities and Investment commission, The Investment Promotion Authority.

Other forms of regulation are indirect and these are made through taxation laws. Such indirect influence affects the organization on their spending towards social responsibilities by providing greater and lesser deductibility or concession on donation made to charity or other worthy societal cause. 

How Organizations Influence Government

Organization can influence their environment in many ways. Organization have three main methods of addressing governmental pressures for more social responsibility;

·         Personal Contact

·         Lobbying

·         Favours and other influence

Because many corporate executives and political leaders move in the same social circles, personal contacts and networks offer one method of influence.

Lobbying: Is the use of persons or groups to formally represent an organization or group of organizations to political bodies such as parliamentary committees to influence selected politicians and public servants directly.

Groups as diverse as farmers, industry bodies and disability support organizations maintain lobbyist and national peak groups for the purpose of monitoring the political process in regard to their specific range of interests and exerting strategic influence on decision-makers.

Favours: Organizations sometimes rely on favours and other influence tactics to gain support. Favours usually take the form of organizational resources being made available to politicians free or at reduced prices, with the spoken or unspoken expectation that the politicians will influence a decision making process so as to advantages the organization.

Example: Funding support to political parties during election time in the hope of winning favours when they form government.

Although favours may be acceptable, they are still subject to criticism. Politicians accepting gifts or favours from persons or organizations motivated by a political agenda do so at considerable risk of damaging their reputation for ethical decision-making.

To inhibit illegal practices, many organization have established regulations detailing explicitly what their employees can and cannot do to support politicians – of any persuasion.

Example: The International Olympic Committee is an example of individual members as well as the organization itself having been criticized heavily in the years leading up to the 2000 Sydney games for unethical conduct involving abuse of power, bribery, personal favours and nepotism.

The demands for social responsibility placed on contemporary organizations by an increasingly sophisticated and educated public are probably stronger then ever. Organization therefore need to fashion an approach to social responsibility in the same way that they develop any other business strategy.

They should view social responsibility as a major challenge that require careful planning, decision-making, consideration and evaluation.

Students are requested to read more into the topic of corporate responsibilities.

 

SOURCE:

Kohler, (2001) Chapters 2 - Chapter 5 The Environmental Context of Management Kohler.


Crane, Matten, (2007) Business Ethics; Managing Corporate Citizenship and Sustainability in the Age of Globalization. Oxford.

Nickel, McHugh, McHugh, (2005) Understanding Business 7^th Edition, McGraw-Hill

Johnson, Abramov, Business Ethics 2004, “A Publication of the Good Governance Program” International Trade Administration Washington D.C. 2004