Social Responsibility of Business

This article provides an overview of social responsibility in business and discusses the extent to which corporate scandals can be attributed to the education system. It also explores the negative influence of business and management on management practice.

Running head: SOCIAL RESPONSIBILITY OF BUSINESS
Social Responsibility of Business
Name of the Student:
Name of the University:
Author Note:

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Introduction:
The article aims at providing an overview of the concept of social responsibility in
business in the context of the high profile corporate scandals of recent times thereby discussing
to the extent when the reason for occurrence of the scandal can be imposed on the system of
education. Social responsibility represents the idea of the business in balancing the activities of
profit making with the activities that proves beneficial for the society (Homburg, Stierl and
Bornemann 2013). It also involves development of a positive relationship of the business within
the society where they operate. It is observed in recent times that the corporate scandals in
United States have led to the stimulation of activities in the various business schools across the
world. This has led the Deans in observing the extent to which a particular curriculum focuses on
the business ethics. These scandals have motivated them in developing newer courses focused on
the corporate social responsibility. They seem worried about the steps undertaken for the
prevention of future corporate scandals. Although there is nothing much that the management
schools can do however instead of creating newer courses they must take care of few of the
older policies. The worst cases related to the recent management practice have their roots
ingrained in certain ideas that emerged from the academic of the business schools during the
previous 30 years. It is not only the management student but also the thousands of executives
who learned lessons devoid of actual theories. People who never attended a business school also
learned such theories thereby legitimizing some of the behavior and the actions of the managers
in the day-to-day activities. The essay thus gives an insight into the negative influence that
business and management have on the management practice. Through the essay, one will also be
able to observe that through the propagation of amoral theories how businesses have freed the
students from the sense of the moral responsibility.

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Discussion:
The Knowledge Pretence
At present, the theories of management in most cases are overwhelmingly functional or
too casual in the modes of the explanation and the aspect of morality or ethics represent mental
phenomena. Hence, they are excluded from not only the theories but also the various practices
shaped by the theories (Mitchel and Norreklit 2017). Thus, the precondition of representing the
business studies as the science and the consequence of resulting belief in the act of determinism
showed explicit denial in the role of ethical or moral considerations in the management practice.
In this context, Milton Friedman has put forward a fact that there exist few trends where the
corporate officials undermine the foundations of free society as an acceptance of social
responsibility instead of focusing on the aspect of making money for the stockholders. A similar
case arises when the CEO as well as the managers justifies their powerlessness in the face of the
external forces is also a representation of the dehumanization practice that they mostly resort to.
Moreover, they free themselves from the ethical responsibility and moral sense of their action
when they claim their helplessness in the face of competition or the capital markets. Thus, the
endeavor of making management science as an aspect of common sense also suffered big time.
In the context of losing wisdom of the common sense it said that there has been numerous
instance that shows how application of the social theories led to some of the worst public policy
decisions in United States. Therefore, if truth claims are put forward as definite achievements
compared to the ones mentioned in physical sciences that overrides the ordinary wisdom it
resulted in social destructiveness whenever there was disagreement. It has been also been
mentioned that there existed scientific pretence in analyzing the social phenomena (Ghoshal

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2005). The failure of economists in successfully guiding the public policy remained connected
with the inclination of closely imitating procedures of the successful physical sciences.
How the Pretence of Knowledge Effects Management Practice
In recent times, the pretence of the knowledge influences the management practice that
encourages managers in maximizing the value of the shareholder (Stewart 2013). The
shareholders are the people who do not own the company but owns right in the residential cash
flow and possesses no rights on either the business or its actual assets. The value of a company is
created with the help of combination of the resources contributed by various constituencies. The
managers and the employers contribute to the human capital whereas the shareholders contribute
towards the financial capital. The question lies in the fact as to why the shareholders receive
favor in comparison to the other contributors. One needs to understand that by casting the
shareholders in the roles of proprietors and the managers in the agents’ role it has become easier
to apply the mathematics of principal agent models to deal with complex social, economic and
moral issues in bigger public corporation that has massive influence on the lives of thousands
and millions of people (Epstein and Buhovac 2014).
Moreover, for ensuring a solution by application of the model some additional
assumptions made (Grayson and Hodges 2017). The assumptions include the perfect efficiency
of the labor market where the wages represents the contribution of every employee towards the
company. If done otherwise the employee might quit and effortlessly move towards another job.
This scenario is assumed for the shareholders who might also make a move. This encourages the
managers in preferring the shareholder’s contribution of capital towards the company thereby

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ensuring them maximum importance. Thus, here one can see that to apply models perfectly in
accordance to the situations the managers’ makes certain assumptions.
According to Quinn (2014), treats the contribution of the shareholders as an
excess supply. He tried to show that there is existence of incomplete contracts as well as the
residual rights for control held by parties whose investments matters most in terms of the
creation of the value. Acknowledgement of such truths helps in portraying there exist no basis
for the assertion of principle that maximizes the value of the shareholders. A counterargument
has been put forward by Friedman (2013), saying that there is nothing to worry if the
assumptions of the theories lacks in reflecting reality but the thing that matters lies in the fact
whether their application is able to predict the outcomes accurately. The validity of the theory
takes place due to the explanatory and the predictive power in spite of assumptions that looks
absurd from the common sense perspective. Although the whole structure of the agency theory in
connection with the maximization of the shareholder value has little predictive or explanatory
power, however the solution to the agency model results in certain simple and direct remedy. He
also mentioned that for relentlessly pursuing the shareholder interest there should be expansion
in the influence and number of the independent directors for effectively policing the management
activities, splitting the role of chair and chief executive officer, creation of market for the
corporate control and paying the managers in options of stock(Schermerhorn et al. 2014).
Although the agency theory is based on invalid prescriptions and unrealistic assumptions,
its dictum remains absolute. As mentioned by Blair (2014) , the agency theory remained
amplified by power of the institutional investors along with the academic and political
supporters that helped in influencing both court decisions and bringing about regulatory changes
in United States. However, according to the observations put forward by Kochan (2002), the

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primary cause of the corporate scandals in United States lay in the over emphasis of the
American corporations in maximizing the value of the shareholder without considering the
impacts of such action on the other stakeholders.
In spite of the lack of empirical support and face validity, the agency theory persistently
dominates the academic research on the corporate governance. Although the theory led to
anomaly in the companies that completely conformed to the remedy put forward by the theory.
Following the theory, Enron is one such example that has loaded almost 80 percent of its board
with independent directors belonging to higher profile. The company also separated the roles of
the chief executives and the chairperson and ensured that the general stock options granted to the
senior manager. In addition, the company operated as a part of the economy that had advanced
market for the corporate control. Despite ensuring all the propositions of the theory, Enron faced
major corporate scandal due to the bad management practices that led to conspiracy, fraud,
insider trading and false statements(Iraya, Mwangi and Muchoki 2015).
Reason for Ignorance towards Issue of Corporate Governance
There was a reason for the ignorance towards the issue of corporate governance since
such perspective did not find a proper modeling due to the absence of the relevant
mathematics(Benn, Edwards and Williams 2014). Therefore, implementation of such a theory
not yields testable and sharp propositions nor was it able to provide reductionist and simple
remedies. Such a premise did not ensure protection of the pretense of knowledge. Treatment of
business cannot follow a scientific approach but should base on the wisdom of common sense
that helps in combining information and imagination for development of a practical

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understanding and follow certain realistic remedies for dealing with the concept of organized
complexity put forward by corporate governance.
According to Fritz (2014), the concept also represents scholarship that helps in yielding
theory that do not pretend as scientific laws but acts like a temporary walking stick for aiding the
common sense as one moves along until there is a better way out. If there is an association of
scholarships with the common sense, it is mostly due to the restrictive definition for scholarship
put forward by the pretense of the knowledge.
However, for protection of the knowledge pretense, community has led to the creation of
conditions that restricted the spread of corporate governance scholarship. According to Ernest
Boyer (2015), there exists four different types of scholarship that includes the scholarship of
discovery also known as research, scholarship of integration, also known as synthesis,
scholarship of practice also known as application and the scholarship of teaching also known as
pedagogy. In the history of management, business schools not only accommodated but also
equally celebrated the four kinds of scholarship (Rice 2016). However, over the last thirty years
such pluralism was lost. Initially there was a justified effort for the introduction of scholarship of
discovery to the business study but later it ended in the elimination of all kinds of scholarships
from the business schools
How Theories Induce Management Behavior
Presently the influential theories related to management and business spans diverse
disciplines in academics that include sociology, psychology and economics (Quarshie, Salmi and
Leuschner 2016). On a collective basis, these theories have converged towards a pessimistic
view not only towards the human nature, the roles of the companies in the society and the

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process for the corporate change and adaptation. The negative assumptions mostly manifest in
stronger forms of determinism in both the institutional and ecological organizational analysis, in
the denial of goal directed and purposeful adaptation of behavioral theories of firm and in
focusing of the value appropriation instead of the creation of the values. Further, they also
manifest in the assumptions related to opportunism, shrinking and inertia while conducting the
economic analysis of the companies. Essentially based on an ideology, the gloomy vision
remains deeply ingrained within theories that act as the starting point of the assumptions and is
exempted for conforming to the empirical evidence or the common sense (Baumann et al. 2013).
Thus, such pessimistic assumptions through the process of self-fulfilling process have curbed the
ability of the managers in playing a positive role in the society. The ideology was pessimistic due
to its emphasis on the freedom as the eventual goal and the individuals as the final entity of the
society. Ideology also referred as liberalism as it was more radical. At the heart of the ideology,
there lay two convictions. The first convention focused on a primary aim of being liberal that
concentrated on leaving the ethical problem for individuals for the individuals to struggle. The
second convention focuses on men as the imperfect beings and considers the problem of the
social organization to be intensely negative thereby preventing the bad people from harming and
enabling the good people to perform goodness. In the last 40 years, the social scientist focused
on the very first convention of the ideology, the negative problem, thereby resulting in
pessimism and the gloomy vision based on ideology.
The combination of the gloomy vision with the process focused on the self-fulfillment of
prophecy, one easily can get an idea on how the theories help in inducing the behavior of the
management and in witnessing the associated problem (Waddock and Lozano 2013). In order to
understand the influence of the theories on the managerial practice it is necessary to understand

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that some people are very opportunistic, self interested and worse. These people make the
promises knowing that the benefits from breaking are far ahead of the cost. They also resort to
cheating and lying. Although most of the people does not represent this category there are some
who does and therefore it is easier to separate both of them. In this context, the negative problem
reflected by the theory focuses on how the organizations are managed from preventing the bad
people from doing harm to the others.
The task of the manager lies in using the hierarchical authority for preventing the
opportunities to benefit at others cost (Hill, Jones and Schilling 2014). Thus, for ensuring
successful coordination, managers should possess an idea about the doings of everyone thereby
imposing strict instructions to do things and use the ability for monitoring and control while
punishing and rewarding for ensuring that everyone works as per the orders implemented. The
outcome of such a management approach is that instead of reducing and controlling
opportunistic behavior of the people, it actually enhances and creates such a behavior. Situations
of using monitoring, authority and surveillance portray the management distrusts about the
employees along with a perceived need for more control and surveillance. In this scenario, the
behavior of the manager seems motivated by the controls of the place that leads to the creation of
jaundiced view of the people. However, from the perspective of the employees the usage of the
hierarchical surveillance and control threatens their personal autonomy thereby decreasing their
intrinsic motivation (Trevino and Nelson 2016). In other words, it destroys self perception.
However, the consequence of the eroding attitudes results in a shift from the voluntary and
consummate cooperation towards perfunctory compliance. Thus, the outcome of the negative
feelings of both the managers and employees represents a spiral relationship. For example, the
combination of the agency theory with the economics of the transaction cost along with the

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addition of negotiation analysis and standard versions of the game theory results in the
emergence of a hard driving, ruthless, top down, control and command focused , obsessed of
maximizing shareholder value and winning any cost business leaders.
Example of Some Bad Management Practice
The Volkswagen Settlement was a major corporate scandal that resulted due to bad
management practice (Rothfeder 2016). The company went for a buyback of its products that
required the company to undertake repurchase from the consumers at the market price. Close to
around four hundred and seventy thousand automobiles with the model years between the 2009
and the 2015 got equipped with the stealth software which was capable of masking during the
testing of the ability of the engines in emitting forty times the permitted levels of the nitrogen
oxide. Thus, the company had to pay in billions for supporting the various projects related to the
pollution control which was the largest punishment rendered under clean air act.
The management style practiced by Volkswagen ensured imposing rigid goals and
punishments for the lower and the middle level employees who were incapable of keeping up
with pace. The origin of the approach found its roots in the top down control that dated back to
the century (Asif et al. 2013). However, the present iteration put forward a concept that typically
encourages the executives in formulating bolder strategic objectives as well as timelines for the
newer services and products with too little inputs from the others. Such aims were presented
mostly as guidelines and not the mandates but the management hardly treated them negotiable.
Therefore, pressurized by expectations piled on them, the employees try to ensure delivery at
every possible cost. The top down culture is gradually discredited for the betterment of the
worker empowerment and better organizational cooperation (Gonos and Gallo 2013). However,

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the approach is embraced to the varying degrees by the bigger names like the Nissan, Apple,
Boeing and the General Electric.
Conclusion:
To conclude, one can put forward the argument of Kurt Lewin that argued that nothing seemed
more practical as good theory. To which based on the concepts portrayed in the essay it is
identified that nothing seemed more dangerous than a bad theory. Throughout the essay one will
be able to find the development of propositions that the presence of the bad management theories
leads to the destruction of the good practices of management. The essay has tried to trace the
source of the badness towards two trends that influenced the kind of the research based on the
business schools over the decades. The essay also tried in increasingly adopting a narrower
version of the positive aspects along with the adoption unsophisticated methods for development
of the testable and casual theories. The essay also tries to give an insight into the gloomy vision
based on the ideology of the theories discussed. Through the essay one will be able to understand
how the growing dominance of the particular ideology focuses on solving of the negative
problems related to the cost of the human imperfections. The essay also helped in understanding
how pessimism was related to the ideology of the theories and finally emerged as self fulfilling
prophecy. One must understand by going through the essay that it is has intended to abandon the
efforts towards the development of systematic theory in the fields of management. However,
there have been suggestions for avoiding certain distasteful aspects of the individual and the
organizational behavior. The distinction between the good and the bad theory should not be used
for the explaining the normative implications of a theory that stands in isolation of the positive

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merits. Thus, a theory must be able to explain and illuminate otherwise it is not considered a
theory. Hopes, sermons, preaching and wishes cannot be theory.

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