Chapter Three Corporate Social Responsibility Jerry Estenson

Large Questions What is the proper role of management in making decisions? What is the proper role of business in society?

Classic Milton Friedman Maximize profits by following rules of the game. Engaging in open free competition, without deception or fraud. Manager is the “agent” of the owners and therefore their wellbeing is their primary responsiblity Bottom line – “Let the marketplace decide”

Critical Assessment How do we deal with market failures? – Externalities (pollution, over use of resources) How do you build in public goods – Parks – Ground water – Safe friendly neighborhoods – Good schools Economic markets as a whole are to complex to be evaluated only one metric (maximization of profit).

Only can judge market failure after it happens and the cost is to high (public health, safety….) Cannot find what truly makes you happy in the market (friendship, love, psychological health What some people want is just silly What some people want is shameful or immoral (buying babies, child pornography, biological weapons)

Property Rights – Absolute? One’s property rights are constrained by others. (Zoning laws and building regulations) Friedman recognized restriction based on rules of society (“law and ethical custom”) Since corporations are not individuals they do have same property rights (they are investors not owners)

Keep in mind Ethical responsibility is more than obedience to the law and legal regulation. All that lawyers and accountants will do it paint the line for you. You have to decide how close to that line you get.

New Classical View Bowie Cause no harm – strong duty not to cause harm Prevent harm – should be encouraged to To do good – should be encouraged to – How far do you move along this continum

Stakeholder Theory Evan & Freeman Rejects stockholder and agent theory Stakeholder “any group or individual who can affect or be affected by the corporation” Now a matter of law Market failures have occurred when attention was not paid to stakeholders Management required to balance interest of all parties Management must consider the consequences and well-being of all groups. Remember the imperative “ treat people as ends not as means” (War in Iraq. Moving from neutral on civilians to civilians as the most prized part of conflict) Manager need to remember that all stakeholders are choosing to continue or change their relationship with organization. (disgruntled employees lobbying to remove management)