rethinking the social responsibility of business

Rethinking the Social Responsibility of Business : A Reason debate featuring Milton Friedman, Whole Foods’ John Mackey & Cypress Semiconductor’s T.J. RodgersBy: Sunita RaiPresidential Business School, Kathmandu, Nepal

Saturday, April 8, 2023

Rethinking the Social Responsibility of Business 2

Contents

• Briefing the case and the three actors

• Issues: “Understanding Corporate Social Responsibility (CSR): The Three Perspectives”

• Alternatives: How can business contribute to the welfare of society?

• Behavioral analysis of consequences of Alternatives!

• Choosing Alternatives and Analyzing the consequences

• Conclusion



What do you mean by Social Responsibility of a Business?

• Social responsibility is a concept used to describe the “obligation” of business to consider the social consequences of economic business decisions (Hill, 2006).

• By delivering "always better cars" to customers and contributing to the betterment of towns and communities, we aim to be a company whose growth is welcomed by as many people as possible. -President, Toyota Motor Corporation

• At The Walt Disney Company the six main components of their approach to corporate responsibility include, Business Standards and Ethics, Corporate Governance, Community, Disney’s Environmentability, and International Labor Standards. –www.thewaltdisney.com

the three Actors

Milton FriedmanAn American Economist who advocate free market economics. John Mackey

Co-CEO of Whole Foods Market, co-founded in 1980. He is a strong supporter of free market economics.

T.J. RodgersCEO of Cypress Semiconductor, and a strong supporter of laissez-faire capitalism.



John Mackey’s Whole Foods Market• Whole Foods Market, Inc. is an

American foods supermarket chain based in Austin, Texas which emphasizes "natural and organic products.”

• The company has been ranked among the most socially responsible businesses and placed fourth on the U.S Environmental Protection Agency's list of Top 25 Green Power Partners.



T.J. Rodgers’ Cypress Semiconductor Corporation

• Cypress Semiconductor Corporation is a Silicon Valley-based semiconductor design and manufacturing company.

• Some of its main competitors include Microchip Technology, Integrated Device Technology, Samsung Electronics, and Xilinx.

http://en.wikipedia.org/wiki/Microchip_Technology

http://en.wikipedia.org/wiki/Integrated_Device_Technology

http://en.wikipedia.org/wiki/Samsung

http://en.wikipedia.org/wiki/Xilinx

Understanding CSR: The Three Perspectives

•The Social Responsibility of business is to increase it’s profits. –Friedman

•Corporations add far more to society by maximizing “long-term shareholder value” than they do by donating time and money to charity. – T.J. Rodgers

•I believe that the enlightened corporation should try to create value for all of its constituencies. – Mackey



Does Friedman’s emphasis on maximizing profits means that he is not concerned for the welfare of the society?

• No. He puts emphasis on the economic utilization of resources of the society in return for providing amenities to that society or government. To make profitable use of resources, one should invest first. Investments come from profits.

• Larger profits will bear high-value products from low-value products. This will save the consumers money.

• Instead of giving the profits to charity, the shareholders may reinvest for research and innovations, adding up business wings, and continuous improvement of the corporation.



Rodgers’ perspective of CSR• Rodgers believes that increasing the shareholders’ value will ultimately

do welfare to the society. Like Friedman, he also believe that a company has to increase profits and multiply them by reinvesting.

• He believes that profit is an end to satisfy social means. He opines that his company Cypress Semiconductor is following “rule of the game” and contributing to the stakeholders.

• For e.g.: Rodger’s semiconductor industry does-relentlessly cutting the cost of a transistor from $3 in 1960 to $0.000003 today.

• Rodger prefers to be free market capitalist rather to be collectivist and altruistic who pretends to care about society.



John Mackey’s Perspective of CSR• Unlike Rodgers’ Cypress

Semiconductor, Whole Foods is focused on customer-centered business rather than profit-centered.

• At Whole Foods, They measure success by how much value they can create for all six of their most important stakeholders: customers, team members (employees), investors, vendors, communities, and the environment.

Alternatives: How can business contribute to the welfare of society?1.Putting Shareholders First

•Shareholders means Investors. Investors are businessmen who are responsible for economic activities and for the outcome from those activities done.

•Profit plays role in allocating resources towards goods and services that consumer desire. Adam Smith says that a merchant who strives for his own gain unwittingly promotes the interest of the society.

•The long-term benefit of the investors will promote the capital of company. This will generate product innovation, high-value products, and employment opportunities.

•Friedman and Rodgers believe that it will increase the living standards of the people.



2.Putting Stakeholders First• A stakeholder is anyone who is affected by the company.

Customers

Employees

Shareholders

Suppliers

Communities

Environment

Mackey Whole Foods’ Six Stakeholders



Ethical Responsibilities of business towards Stakeholders

• Company delivers honesty, service and reasonable priceCustomers

• Recognize and Reward the employees for better team performance.Employees

• Share profits, return on capital, and psychic income to stockholders.Shareholders

Suppliers

Communities

Environment

• Establish stable and honest business relationship with fair financial reward

• Give 5 percent of profits to community causes

• Stewardship



Behavioral analysis of consequences of Alternatives!1.Profit-centered business

• If all the business started doing only business concerning only its investors, it will make profits but the profits shared among investors will only empower more capitalistic society. Rich countries will become richer and poor countries more poorer.

• T.J. Rodgers’s Cypress Semiconductor is moreover focused on strengthening investors and employee morale. Rodgers believe that creating competition and giving awards to the employees will attract more people to join his organization.

• The distribution of profit is limited because it is only shared with investors. The freedom of will make them to invest in illegal activities. i.e. Financing for War guns.



Q&A:Suppose If the businesses only do business and nothing else and At the end, if the environment didn’t exist, what will you do with your profit? What do

you think about how the company should use their PROFIT in order to deliver maximum good for all stakeholders?



2. Customer-centered Business

• Customer’s happiness is Company’s success. Mackey’s strategy to provide organic foods to consumers is an act of social responsibility towards his customers.

• The 5 percent of profit sharing as donation to non-profit organization will make a positive impression on stakeholders.

• If the consumers believe that Whole Foods is a good corporate citizen, they may be more willing to buy groceries at its stores, which ultimately increases revenues and profits.

• Organization who has invested huge amount in CSR activities has earned maximum profits. For e.g.: Walt Disney, Nestle, Toyota.



An example of Business alongwith CSR act of Recycling by Tetra Pak



Toyota Eco-friendly cars



CSR activities in Nepal

• Surya Nepal(SNPL) has provided two ambulances and has been helping make available anti-venom and oxygen cylinders that are essential for saving lives in times of medical emergency.

• SNPL has been empowering needy women through vocational trainings such as garments sewing, weaving, agarbatti, bindiya and candle-making, local handicrafts,

dairy products etc.

• Promoting sports & tourism and sports tournament like Khukuri Cup and Surya Nepal Masters, Nepal’s only International Masters golf tournament. (www.snpl.com.np)

http://www.snpl.com.np/



Choosing & Analyzing: The Customer-Centered Business

• For the question of long-term profit making and sustainability of the business, choosing the customer-centered business is wise and ethical decisions to make. Customer happiness is an end in itself while profit is only a means to an end.

• Unlike Rodger’s Profit-maximization model, Mackey’s Whole Foods follows Robust Stakeholder Model. Besides Investors, the other stake holders do not have property rights in the company. Thus, it benefits investors with psychic incentives along with company’s dividends.



Choosing & Analyzing: The Customer-Centered Business

• In this case, Customer-centered business doesn’t mean that business is done for charity. Mackey says that he puts Customers ahead of Investors. It means he is also considering the profits.

• A market research study found that 42% of how people feel about a company is based on their perceptions of the firm’s corporate social responsibility (CSR). - Reputation Institute, a private global consulting firm



The Ten Companies with Best CSR Reputation-By Forbes 2013



Conclusions

• This case draws our attention on the issues about CSR. It answers queries like what is CSR? How do general people and businessmen understand and perceive CSR?

• Precisely, this case is about an article debate among three significant individual: Friedman, Mackey and Rodgers published by Reason magazine.

• Rodgers favors’ Friedman view that a Profit is the sole reason for the firm to exist.

• The stakeholders for Friedman are only investors. He supports the idea that increase in the private property will fulfill the society’s interest.



Conclusions

• The Fiduciary duties of employees remains only with the shareholders.

• In Contrary, Mackey’s believes that Profit is necessary for business survival, but other goals (Stakeholders well-being) are also important to the firm.

• Mackey views that Fiduciary duties of employees remains to a wide range of stakeholders.

• For the question of long-term profit making and sustainability of the business, choosing the customer-centered business is wise and ethical decisions to make. Customer happiness is an end in itself while profit is only a means to an end.



Corporations have provided billions of dollars in aid to victims of Hurricane Katrina, the South Pacific

tsunami and AIDS in Africa. In some cases, these contributions have been more

effective than government aid. What do you think would Friedman and Mackey support these types

of donations?

Concluding Q



But Mackey would approve even if the

donations had no positive impact on the company’s finances. He would say

that corporations have an ethical duty to use some of their profits for

the public good, as long as shareholders can question executives about such programs at the company’s annual

meetings.

Friedman would oppose philanthropic donations if a company’s executives used

them only to support their own personal causes or improve their

personal reputations. He would say that the company should take the aid

money and instead give it to shareholders by, say, raising the dividend

on company stock. Then the shareholders could use the money to support their own

favorite charities.

Both men would want to understand the reasons behind the

aid. They would approve if the donations generated good public relations

and advertising for the firms and caused sales and profits to rise.



Queries, Comments and Suggestions Please!

rethinking the social responsibility of business

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