Proceedings of Annual South Africa Business Research Conference
11 - 12 January 2016, Taj Hotel, Cape Town, South Africa, ISBN: 978-1-922069-95-5
Business, Ethics and Corporate Social Responsibility
Arun Datta
Key-words: Corporation, Free Will, Self-Interest, Altruism
BACKGROUND
This paper is about Corporate Social Responsibility (CSR). “Corporate” means
“belonging to or connected with a business” or “shared by or involving all the members
of a group”, (Longman Dictionary of Contemporary English, 1995 edition). CSR
therefore, is about the social responsibility of those people who have formed a group with
an aim of doing some business. According to the Dictionary “business is the activity of
buying or selling goods or services that is done by companies”. Businesses do more than
just buying and selling; they add value also. However, we can understand business as an
economic activity. CSR is about the social responsibility of the group of people involved
in an economic activity.
Economics
Let us understand economics, ‘the activity of making money’ and analyse it. In 1849
Thomas Carlyle described economics as “a dreary desolate and indeed quite abject and
distressing [subject]; which we might call, by way of eminence, the dismal science”,
(Conway,3). As a modern subject, economics examines what drives human beings do
what they do and also studies how they react when faced with problems and successes.
Adam Smith coined the term “invisible hand” in the 18th century. The term in short means
the law of demand and supply. The pull and push of these two factors form the basis of
economies. We supply or demand what is in our best interest. ‘Self-interest’, therefore is
the prime-mover and also the foundation of economies. Adam Smith says in The Wealth
of Nations:
____________________________________________________________________
Arun Datta, PhD (Philosophy). Lecturer Technical University of Kenya. arundatta16@gmail.com
Proceedings of Annual South Africa Business Research Conference
11 - 12 January 2016, Taj Hotel, Cape Town, South Africa, ISBN: 978-1-922069-95-5
[Every individual] neither intends to promote the public interest, nor knows how much
he is promoting it... By pursuing his own interest he frequently promotes that of the
society more effectively than when he really intends to promote it. I have never known
much good done by those who affected to trade for a public good.
Obligations of a Business
There is no consensus on how ethical a business should be. However nearly everyone
agrees that businesses should be run within the legal systems and make profit. Noblelaureate Milton Friedman says that businesses have the exclusive social responsibility to
engage in open and fair competition without deception and fraud. He believes that using
profits that belong to the shareholders for charitable purposes is unethical. In 1916 the
Michigan Supreme court heard a case filed by John and Horace Dodge against Ford
Motor Company. Henry Ford wanted to use the special dividends payable to stockholders
for increasing the number of plants and employees. He wished more people to benefit
from the industry and build their lives and homes. The court ruled that the funds be
released to the stockholders and said “A business is organized and carried primarily for
the profit of the stockholders”.
However, the later part of the twentieth century has seen an increase in the companies
ensuring ethical compliance. The general feeling is that businesses have a social
responsibility to improve the communities in which they operate.
Laws, Ethics and Morality
Self-interests can contradict each other. Laws are enacted to keep self-interests under
control but ‘legal’ only means ‘within the law’. ‘Legal’ and ‘right’ are not the same. In
business, the laws do not always address issues of ethical concerns. In the past the
business managers worked under the assumption that morally acceptable conduct
involved staying within the law. Sometimes the law-makers and regulators may not even
be aware of some ethic-sensitive issues. Laws often lag behind in the ethical matters.
Moreover ethical questions are not always universal. Many times the businesses have
ethics-sensitive information that the outsiders do not have. For example the cancercausing properties of asbestos were not known to people outside the industry. Therefore
no laws were enacted against its production and common use. As the people involved in
Proceedings of Annual South Africa Business Research Conference
11 - 12 January 2016, Taj Hotel, Cape Town, South Africa, ISBN: 978-1-922069-95-5
the business were fully aware, it was a case of morally wrong but legal conduct. That
means, one can stay within the law and still not do the right thing.
It is humans who conduct businesses and by virtue of being human, we know the moral
law. Kant argued that we know the moral law even without reference to any consequences
(1788, p.193).
Two things fill the mind with ever new and increasing admiration and awe...the starry
heavens above and the moral law within me.
Businesses affect humans and Kant’s advice does not need any explanation (1797, p.428).
So act that you treat humanity, both in your own person and in the person of every other
human being, never merely as a means, but always at the same time as an end.
Morally, the very purpose of doing business therefore is to benefit all concerned.
Why be ethical?: The business perspective.
Businesses have a vested interest in being ethical. When the law does catch up with the
ethical issues the external regulation is expensive and involves red tape and is
cumbersome. There is also a possibility of public backlash which can attract stricter
government oversight. If the companies address ethical issues before they become public
knowledge, it goes to their credit. They are considered morally upright and may attract
more business.
Businesses are conducted to enrich the shareholders within the economic frameworks.
The underlying principle or the philosophy of economics is self-interest. Human beings
are the “labour”, “entrepreneur” and the “consumer” of economic activity. It is in the
interest of those conducting business (entrepreneurs) to remain within ethical and moral
domain to avoid a possible backlash from the “labour” and “consumers” of their products
and services.
WHO’S SOCIAL RESPONSIBILITY?
Proceedings of Annual South Africa Business Research Conference
11 - 12 January 2016, Taj Hotel, Cape Town, South Africa, ISBN: 978-1-922069-95-5
Business corporations are not formed to do charity. They aim at making profits and that
also for their stockholders only. There are laws that govern the formation and conduct of
businesses. Corporations should remain within the law and conduct their business
morally. If not corporations; which organizations do have social responsibility?
Governments are formed to enact laws, implement them, to collect revenue and spend it
for the maximum social good. Most elections, in the democratic countries are fought on
the agenda of social welfare. The winner forms the government and is mandated and
expected to do the same.
For the sake of understanding, let us imagine a democratic country that has only one
Business Corporation and all the citizens have share in it. What is expected of this
Corporation? Conduct moral and ethical economic activity and give maximum dividend
to its shareholders. And the Government is supposed to collect taxes and spend it for the
maximum social good. Whatever the Government can provide, with the material and
human resources at her disposal, is the correct level of social welfare. Suppose this sole
Business enterprise, decides to do some charity work. The following anomalies occur:
1 The beneficiaries of the charity get undue advantage, if they did not deserve it. If they
deserved it, the Government should do it.
2 The persons running the corporation are qualified for and should focus on generation
of wealth and not on charity work.
3 The elected persons in the Government are mandated to and have declared interest in
public welfare.
4 The resources or money spent on charity belongs to the shareholders, as personal fund.
If it is a tax-rebate, then it belongs to the people. Because as tax, it was going to be spent
on people’s welfare!
We can come up with many more. Now, instead of only one corporation, if there are two
or three or more; personal wealth vs. public wealth equation does not change. Even the
individual entrepreneurs can be seen as a one-man corporation.
Stakeholders
Proceedings of Annual South Africa Business Research Conference
11 - 12 January 2016, Taj Hotel, Cape Town, South Africa, ISBN: 978-1-922069-95-5
Besides the stockholders, companies have stakeholders. These include employees,
lenders, customers, suppliers and government regulators. Success of a business depends
upon proper management of the stakeholders. The mutual needs, between the company
and each of them, are contractual and come within the law.
CORPORATE SOCIAL RESPONSIBILITY
Modern corporations do contribute to charity. Tax breaks are one of the direct benefits.
It is a public relations activity. Moreover it improves the corporate image. The
philosophic term ‘altruism’ means ‘putting the interests of others ahead of your own,
without regard to any reward you may receive’. The charity conducted by the
corporations, is no altruism.
The large number of stockholders or share-holders of a company may not be willing to
contribute to charity. Managers are the stockholders’ agents and are paid to increase the
latters’ wealth. With the result the companies ‘invest’ in the charities, which actually
benefit the company more than anyone else.
We have seen cause-related marketing in the recent years. The company promises to give
a small amount of profit from one of its products to charity. Actual costing of the product
is not public knowledge. In 1980s in USA, a company American Expresslaunched a
campaign to restore the Statue of Liberty. It promised to contribute to the cause every
time one used their card or opened a new account. The company spent 7 million Dollars
to promote this charity campaign. It contributed to their marketing and image. Only 1.7
million Dollars was raised for the intended object of the restoration.
Tax-breaks are intended to encourage charity. In many cases they are found to benefit the
wrong group.A survey in the US showed that a majority of the hospitals are considered
non-profit organizations. They receive extensive tax-breaks. The sample survey showed
that ten hospitals enjoyed a total benefit of Dollars 638 million against the free medical
care and charity of Dollars 374 million.
A charitable solution to a problem may create other undesirable issues. For example when
large amount of aid becomes available to fight infectious diseases, most medical
Proceedings of Annual South Africa Business Research Conference
11 - 12 January 2016, Taj Hotel, Cape Town, South Africa, ISBN: 978-1-922069-95-5
resources get diverted to it. With the result other equally disastrous ailments go
unattended. Moreover, slightly disadvantaged groups may lose their ‘fight-to-survive’
skills if supported excessively.
Corruption
Amnesty International’s indices on the levels of corruption in various countries convey a
message. Although more research needs to be done on this issue, but there is a correlation
between the levels of corruption, poverty and need for CSR. Corruption reduces the
amount received by the exchequer and therefore the amount available for welfare. The
large companies that may benefit from corruption have a need to polish their public
image. Companies dealing with products which may be harmful to health, usually have
higher budgets for CSR in the area of sports.
CONCLUSION
Businesses are economic activities, driven by demand and supply. Self-interest is the
driving force. Corporations are formed and run to benefit their investors. They are obliged
to be legal in every respect. They also have conscious obligation to be ethical and moral.
By fulfilling their moral, ethical and legal commitments, they contribute to the overall
welfare of society. Governments are formed to ensure that. CSR is not mandatory and
may benefit the doer more than the target.
BIBLIOGRAPHY
Convay, E.(2009) 50 Economic Ideas, Quercus.
Kant, I (1788) Critique of Practical Reason,trans. By L.W.Beck, Bobbs-Merill,
Indianapolis, 1977.
Kant, I. (1797) The Metaphysics of Morals, Cambridge University Press, Cambridge,
1996.
Proceedings of Annual South Africa Business Research Conference
11 - 12 January 2016, Taj Hotel, Cape Town, South Africa, ISBN: 978-1-922069-95-5
Papineau, D. (2004), PHILOSOPHY, General edition, Duncan Baird Publishers Ltd.,
London.
Smith, A. (1776), The Wealth of Nations, Everyman’s Library 1910.
Schneider, M. and Bowie, N. Business Ethics for Dummies.Wiley Publishing, NJ, USA.