Social Responsibility of Business towards stakeholders - Social Environment, Business Environment | Business Environment - B Com PDF Download

Whether or not a business bears social responsibility to its stakeholders and society in general is a matter of strenuous debate. While some economists and businessmen claim a company's only obligation is an increase in profits, others insist that companies bear not only a responsibility toward its balance sheet but to customer and societal happiness as well.

Increase the Profit

Nobel prizewinning economist Milton Friedman wrote in 1970 that the "one and only one social responsibility of business" is "to increase its profits," assuming an honest and open marketplace. Friedman opined that those who disagreed with this assertion were "preaching pure and adulterated socialism." Friedman's opinions boiled down to a simple idea: Companies should focus on honestly earning as much money as possible for their stakeholders. Beyond this, according to Friedman, companies do not bear any additional responsibility toward society.

Put the Customer First

Not everyone agrees with this hard-line view. Reason.com invited John Mackey, the founder and CEO of Whole Foods to write about this topic. Mackey believes that while profits are indeed the core element of running a business, the modern company must "create value for all of its constituencies." Mackey noted that the successful companies typically "put the customer first." Putting the customer first may not guarantee the most in profits, Mackey told Reason.com, but it does ensure that "customer happiness is an end in itself," which may lead to greater customer loyalty.

The Case for Shared Value

The "shared value" model doesn't redistribute wealth; instead, shared value refers to business and society working together to increase profits and improve society at the same time, according to January 2011 Business-Ethics.com article. In this new model, the business achieves economic success because it addresses society's "needs and challenges." Although the framework for the shared value business model isn't yet clear, ideally the betterment of society would be at the core of the business's beliefs. It would expand or open markets to serve new needs in an efficient way, while also profitably serving its investors.

Shareholders vs. Society

Despite these emerging business models, many companies still feel the best way to be socially responsible is by earning as much profit as they possibly can, because the profits earned are invested back into the business. In theory, when this occurs, the business creates new jobs, goods or services, causing the company to grow. When the company grows, the stakeholders -- who are funding the operation -- should earn a greater return on their investment. Much a like a shark, a company must move forward. If it doesn't, it dies -- taking employees and stakeholders along with it.