Formative assignment for Managing in the Global Economy, by Mattar, Müller and Neumann. 13/7/2012

1. MANAGING IN THE GLOBAL ENVIRONMENT
FORMATIVE ASSIGNMENT
MATTAR - MÜLLER - NEUMANN
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2. MILTON FRIEDMAN:
“THE SOCIAL RESPONSIBILITY OF BUSINESS
IS TO INCREASE ITS PROFITS.”
• Friedman views are that any socially • Finally he discuss that such actions are
responsible activity will be at the a violation of important democratic
expense of stakeholders, being the principles, it is the government who
clients, employees or owners who will should impose taxes, and decide how
ultimately pay for it. to allocate funds.
• He also sustains that managers as • Ultimately, Friedman’s view is that
executive –and not as owner– are not creating wealth, the companies are
entitled to pursue “social responsible” making a valid contributions, whereas
ends (Principal – Agent theory). deciding how to allocate such wealth is
the society’s responsibility: the people
and (on their behalf) the government,
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3. FURTHER DISCUSSION
BASED ON FRIEDMAN’S VIEWS
• 1 The nature of profits:
Can profits function as the sole end for a company?
• II The impact of social responsibility on the business
(and on profits).
• III Is striving for profits a valuable business mission?
(raison d'être for a business).
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4. FREDMUND MALIK
THE BUSINESS OF MANAGEMENT
• Malik argues: It is true, businesses need • Malik defines profit by its functions
profits but can profiting be an end a measure for effectivity –doing the
itself? right things– and efficiency –doing
things right.
• Management for Malik is not the ability
to make profits, it is the ability to • He poses that the business model has
transform resources into utility. to be formulated in the business
mission. Its 3 elements should be:
• The most important indicator for the
success of a business should be 1. What do customers need?
costumer satisfaction.
2. What can we do better than others?
3. What do we believe in?
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5. THE BUSINESS FIRST OF ALL HAS TO LOOK
OUTSIDE OF ITS BOUNDARIES
• Social responsible projects can • Social commitment can attract
therefore be one way to create a quality employees or make the
higher customer satisfaction. employees proud of their
company (which might lead
• Environmental friendly behaviour to higher performance).
can avoid taxes and legal claims or
reduce future costs. Being close to • Malik argues that social
social developments can therefore responsibility should always be
lead to competitive advantage. In subordinated to the business
this regard it is the obligation of mission and in accordance with it;
the business to engage in “social therefore it can be an aspect of
responsibility” the success of the business, but
should not be an end in it self.
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6. ANEEL KARNANI
THE GRAND ILLUSION
• Karnani argues that corporate • In situations where public
social responsibility is either interest are in direct
irrelevant or an ineffective opposition to shareholder
‘illusion’ interest, managers are ‘unlikely
to act voluntarily’ where it is
• Karnani makes this argument impossible to profit by doing a
on the basis that managers public good
and business will behave in a
manner deemed by society as • Karnani separates these two
responsible where these areas into the zone of
needs are aligned with profit opportunity and trade-off
producing behaviours
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7. Corporate social responsibility & efficient markets
• Karnani’s argument supports • This argument is illustrated with the
Friedman’s view, in that the driving example of changes by fast food
influence on a business’s behaviour companies such as McDonald’s to
should be the pursuit of profit. Any serve healthier foods in their outlets.
resulting behaviour that is deemed as This move would be deemed as
being responsible and positive in a positive for society, but in itself was
societal context should have been driven by profit maximisation, with
initiated by market forces and moves McDonalds acting in self-interest.
to satisfy changes in consumer
demand. • This ‘zone of opportunity’ exists where
a firm can maximise profits by acting in
a way that is seen as being socially
responsible. However as Karnani points
out, the firm will act in this way
because it is the efficient way to act in
a market economy, not because society
calls for it.
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8. THE TRADE OFF AND MARKET FAILURES
• To illustrate the dangers in relying on • He argues in favour of Friedman’s view
corporate social responsibility to repair that whilst managers, employees, and
circumstances of market failure, Karnani shareholders may offer support for such
reflects on pervasive issues including issues in their personal capacity, any
poverty and pollution, where solutions are meaningful attempts at solving such
likely to be in direct opposition to profit problems from a business perspective
maximisation. would be in direct contradiction with
business objectives.
• The ultimate solution required to balance
business behaviour in scenarios of market
failure must come in the form of
government regulation or civil activism
rather then the sole actions of managers.
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9. CONCLUSION
Neither profits or corporate responsibility are the raison d'être
of the business. While social responsibility can be an important
aspect of the business mission only a focus on the business core
activities (as pointed out by Merck) will deliver true value to the
society in a fair and democratic way.
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