Essay: Social Responsibility of Business and Profit Maximization

This essay critically examines the concept of social responsibility in business, beginning with an introduction to the core principles of corporate social responsibility (CSR). The main body delves into a critical discussion of Milton Friedman's shareholder theory, which posits that a business's primary responsibility is to increase profits. The essay contrasts this with stakeholder theory, emphasizing the importance of considering the interests of all stakeholders, including employees, customers, and society. The triple bottom line theory, which emphasizes people, profit, and planet, is also discussed as an alternative perspective. The essay then provides a practical example of a small to medium-sized company, APS Group, to illustrate socially responsible behavior, highlighting its community initiatives and sustainability efforts. Finally, the ethical and sustainability standings of various organizations, including APS Group, Tesco, and Lloyds Bank, are evaluated using audit skills, providing a comparative analysis of their CSR practices and effectiveness. The conclusion summarizes the key arguments and findings, reinforcing the significance of CSR in contemporary business practices.

Social Responsibility of
Business

Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Critically discuss the statement “The social responsibility of business is to increase its profits”
using contrasting theories............................................................................................................1
Using an extended example that illustrates Socially Responsible behaviour..............................3
Evaluate the ethical and sustainability standing of a range of organisations..............................4
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Social responsibility or corporate social responsibility is the theory according to which every
organisation has a duty or responsibility towards the people associated with that company which
is required to be fulfilled (Crane, Matten and Spence, 2019). The main aim of this essay is to
analyse and understand the statement given by Friedman in 1970 in which he stated that the
social responsibility of business is to increase its profits. For this purpose, this particular essay in
divided into three sections which will articulate the contrasting theories to the theory of
Freidman and these theories will include stakeholder theory and triple bottom line theory. Along
with this, an example of a small medium company will be selected to analyse the practice of
social responsibility in this company. Lastly, ethical and sustainability standing of a range of
organisations will also be assessed.
MAIN BODY
Critically discuss the statement “The social responsibility of business is to increase its profits”
using contrasting theories
The statement stating the social responsibility of business is to increase its profits is given
by Friedman and this statement reflects the theory given by him named as shareholder theory.
This theory and this statement was highly engaged in arguments due to which to which it is
important to discuss this statement using contrasting theories. This statement is supported by the
shareholder theory of Friedman which considers that a business must only focus upon its
shareholders and earning profit but looking from a contemporary point of view, shareholders are
not the only stakeholder of a business, there are various other parties which are influence by the
decision of the company. So, it is not valid to consider this statement appropriate. In order to
counter argument this theory, it is important to understand its contrasting theories and few of the
contrasting theories are:
Stakeholder theory
This theory was given by Freeman and this a contrasting theory from the Friedman’s
theory of shareholders. There are various differences between these two theories; the Freidman’s
shareholder theory was devised for 20th century which stated that the most important social
responsibility of an organisation is against its shareholders and it is to increase their profits so
that shareholders can be benefitted (Cui, Jo and Na, 2018). On the other hand, Freeman’s
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stakeholder theory states that an organisation has its social responsibilities against all its
stakeholders and all of these responsibilities are important to be fulfilled. This theory of Freeman
is a contemporary theory which is more inclined to modern business practices of 21st century.
According to this theory, there are various responsibilities which are required to be fulfilled by
the organisations; social responsibilities against each stakeholder is analysed below:
Employees – This stakeholder group is the most important group for an organisation as
they are reason due to which an organisation is able to operate in a competitive market
effectively. This group of stakeholder includes employees at all the level of an organisation.
There are various social responsibilities which an organisation needs to fulfil; these
responsibilities include providing recognition and rewards against effective performance,
appropriate salaries, positive working environment, scope of education and development and
more.
Board of Directors – This is an internal stakeholder group who is responsibility for
development of the organisational strategies and plans. This stakeholder group is highly
impacted by the decisions of an organisation due to which it is important for an organisation to
fulfil their social responsibility towards this stakeholder group. Organisation has a social
responsibility to generously pay their BODs and respect their plans for organisation’s future
growth. This theory tends to show that not only the shareholders but employees and BODs are
also an internal part of an organisation and it is important to consider these parties as well when
making a decision. This shows Freeman’s theory is quite opposite a contrasting to the
Friedman’s theory.
Shareholders – This stakeholder group are the owners of a company who invests their
capital in the shares of an organisation and become a part owner of the organisation. An
organisation has a responsibility against their shareholder which is to increase their profits and
distribute effective dividend so that shareholders can earn suitable returns against their invested
capital (Freeman and Dmytriyev, 2017). This point of Freeman’s theory reflects that being a
contrasting theory does not mean earning profit is not important but it is also important to
maintain sustainability in the organisation.
Customers – It is an external stakeholder group who buy goods and services of the
organisation. These individuals are main reason behind success of an organisation and are
responsible for the high revenue of the company. Considering this, it is a social responsibility of
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an organisation to provide high quality products to their customers and ensure that every issue of
customers is being resolved effectively.
Society – This stakeholder group is the combination of all the individuals who are involved
in a society in which an organisation operates. This society include environment, public,
potential customers and customers of the company due to which it is important that organisation
fulfil its responsibilities towards the society. There are various social responsibilities which an
organisation must fulfil and these includes effective waste management, contribution towards
education and health department, forestation, environment preservation and more (Liang and
Renneboog, 2017).
Government – This stakeholder group impacts the organisation indirectly by its policies
and laws. An organisation has responsibility to duly pay all its taxes against their responsibility
towards government.
Suppliers / Debtors – This is also an external stakeholder group who supplies raw material
to the organisation and an organisation is socially responsible to duly pay their debts to their
suppliers and do not form a cartel to fix the acquisition rate of supplies. The above four
stakeholders are external parties which do not make a part of a business but are impacted by the
actions and decisions of the organisation. Consideration of even external stakeholders make the
theory of Freeman’s stakeholder different from Freidman’s theory.
All the social responsibilities mentioned above are significant for an organisation to
satisfy.
Triple bottom line
It is another theory which contrasts to Friedman’s shareholder theory as according to triple
bottom line theory there are three aspects of social responsibility which an organisation is
required to be satisfied; these aspects are people, profit and planet. This combination has three
aspects whereas Freidman’s theory and statement had only one aspect which was profit
(Maqbool and Zameer, 2018). According to the investigation, a conclusion has been gained that
Friedman’s theory focusing upon only earning profit is not appropriate due to which it is
important for business organisation to follow theories like triple bottom line. These aspects of
TBL are analysed below;
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People – This aspect of Triple bottom line states every organisation must fulfil their
responsibility towards their people which involves their employees and customers. A company
must adequately pay their employees and provide quality goods to the customers.
Profit – Under this aspect of TBL, an organisation should operate in such a way that it can
increase its profit and pay sufficient part of profit to shareholders.
Planet – Under this aspect, TBL has suggested that every company should preserve their
surroundings and do not contribute in air and water pollution (Wang and Sarkis, 2017).
Above theories of TBL and stakeholder are contrasting theories which challenge the
statement given by Freidman stating the social responsibility of business is to increase its profits.
Using an extended example that illustrates Socially Responsible behaviour
The example which has been selected to illustrate social responsibility is APS Group. This
is a small medium organisation which is engaged in providing marketing solutions to
organisations. This company has formalised its CSR over past two years. This company has a
specialised CSR team which ensure effective fulfilment of social responsibility of this company.
The theory of social responsibility used by this company is triple bottom line and there are
various situations where this company has implemented its CSR activities. Two of such
situations are analysed below:
Community initiative – APS Group is involved in a community initiative under which 20
employees of this company mentor students of a sports academy. This initiative of APS Group
satisfies their people aspect of triple bottom line theory (Advantage, 2020).
Sustainability – Under this situation, APS group has implemented a supplier management
programme under which they ensure that all their suppliers use sustainability policies and reduce
the number of trips in order to decrease the carbon footprint caused by vehicles. This corporate
social responsibility of this company is conducted in order to satisfy their planet aspect of triple
bottom line theory. This activity of APS group is their Sustainability Strategy at the operational
level (How SMEs can engage in social responsibility programmes, 2011). As APS is a small
organisation, it does not have a CSR report but the corporal social responsibility activities of this
company are noticed and published by news articles.
Evaluate the ethical and sustainability standing of a range of organisations
A business organisation is able to operate in a market due to the resources which they
procure from the society due to which it is important for an organisation to not only focus upon
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increasing profits, but to also contribute towards the society. Under the social responsibility of an
organisation it is considered that an organisation is required to fulfil their ethical and
sustainability responsibilities. The ethical and sustainability standings of an organisation
basically represent the efforts made by them to meet their social responsibility and other ethical
principles towards society and whole community. In order to evaluate ethical and sustainability
standing of a range of organisations, audit skills are used. Using these skills, a tabular
representation and analysis are presented below:
Name of the
organisation
Ethical standing Sustainability
standing
Effectiveness (Raging
1 to 5; being 5 the
most effective)
APS It is one of such
organisation that
regularly conduct
CSR programmes and
makes efforts to meet
its ethical and
sustainability
standings which
consists of fulfilling
environmental
responsibility and
supporting the local
community through
extending
opportunities for
individuals. Thus, it
can be evaluated that
all possible efforts are
made by APS to have
a higher ethical
standing through
To maintain its
Sustainability, a
supplier management
programme has been
adopted by APS
which ensure that all
of its suppliers must
have implemented an
effective
sustainability policy
which consists of
amount and material
of packaging used by
them along with
efficient management
of their delivery
vehicles in order to
reduce unwanted trips
and ensure reduction
in the amount of
pollution created by
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leading CSR
programmes and
keeping a check on
defilement and
pollution lead by its
practises on
environment.
these suppliers.
Tesco Plc Tesco Plc cares about
its people and whole
community through
different ways which
consists of leading
healthy living,
education and many
initiatives towards
charities and
providing a good
working conditions to
its employees.
Furthers, efforts are
also made by Tesco
for advancing rights
of human at its
workplace and in the
supply chain to meet
its ethical implication
and principles.
To maintain its
sustainability, regular
efforts for recycling
and re-use of products
is made by Tesco for
leading prevention
and conservation of
environment.
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Lloyds Bank This organisation has
developed an ethical
policy statement
document under
In order to maintain
their sustainability
standing, Lloyds Bank
invests under various
5
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which this company
ensures that they work
with high integrity
and secure all the
information of their
clients (Lloyds ethical
standing, 2020).
green projects in order
to save and preserve
the environment.
These green projects
include the offshore
wind farms, solar
energy projects and
tidal energy projects
(Lloyds sustainability
standing, 2020).
The above tabular representation is the ethical and suitability standing of three
organisations in order to ascertain their effectiveness of CSR activities.
CONCLUSION
From the above essay it has been concluded that increasing profit is not the only
responsibility of an organisation as it is important for an organisation to satisfy all their
stakeholders who are responsible for operations and success of an organisation.
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REFERENCES
Books and Journals
Advantage, C., 2020. Corporate Social Responsibility. CSR and Socially Responsible Investing
Strategies in Transitioning and Emerging Economies, p.65.
Crane, A., Matten, D. and Spence, L. eds., 2019. Corporate social responsibility: Readings and
cases in a global context. Routledge.
Cui, J., Jo, H. and Na, H., 2018. Does corporate social responsibility affect information
asymmetry?. Journal of Business Ethics. 148(3). pp.549-572.
Freeman, R. E. and Dmytriyev, S., 2017. Corporate social responsibility and stakeholder theory:
Learning from each other. Symphonya. Emerging Issues in Management. (1). pp.7-15.
Liang, H. and Renneboog, L., 2017. On the foundations of corporate social responsibility. The
Journal of Finance. 72(2). pp.853-910.
Maqbool, S. and Zameer, M. N., 2018. Corporate social responsibility and financial
performance: An empirical analysis of Indian banks. Future Business Journal. 4(1).
pp.84-93.
Wang, Z. and Sarkis, J., 2017. Corporate social responsibility governance, outcomes, and
financial performance. Journal of Cleaner Production. 162. pp.1607-1616.
Online
How SMEs can engage in social responsibility programmes. 2011. [Online]. Available through:
<https://www.theguardian.com/voluntary-sector-network/community-action-blog/2011/
dec/05/corporate-social-responsibility-daunting>
Lloyds ethical standing. 2020. [Online]. Available through:
<https://www.lloydsbankinggroup.com/globalassets/our-group/responsible-business/
download-centre/ethical-policy-statement_november15.pdf>
Lloyds sustainability standing. 2020. [Online]. Available through:
<https://www.lloydsbankinggroup.com/globalassets/documents/investors/2019/
sustainability_bond_lb_framework_-may2019.pdf>
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