Honest Work
Chapter 6: Is “The Social Responsibility of Business … to Increase Its Profits”?
Social Responsibility and Stakeholder Theory
The Conflict
Should businesses be concerned only with maximizing profits for shareholders?
Friedmanites, Shareholder Theory
Or, should businesses also be concerned about how their decisions affect the community in which they operate?
Anti-Friedmanites, Stakehoder Theory
“The Social Responsibility of Business Is to Increase Its Profits”
Milton Friedman
(1970)
For Friedman, the market represents free choices persons make and profit is the expression of those choices
Maximum profits mean maximum good in a market society
“Social responsibility” contrary to purpose of business
Would interfere with structure of free market
“The Social Responsibility of Business Is to Increase Its Profits”
Milton Friedman
(1970)
Responsibility
Businesses are artificial entities, and cannot hold real responsibilities
Individual persons hold responsibilities
Which individuals are we talking about?
Corporate executives hold responsibilities toward their employers
Usually, make as much money as possible within confines of society’s rules
Difference between acting as an agent and as a principal
As employee of owners, a corporate executive acts as an agent, based on employer’s desires
As an individual, a person acts on their own interests and desires as a principal
Social responsibilities apply to principals (individual choice), not agents (acting according to employer’s choice)
“The Social Responsibility of Business Is to Increase Its Profits”
Milton Friedman
(1970)
When a corporate executive (as an agent) acts according to some principle of “social responsibility,” he or she acts wrongly
Reduce shareholders returns
Raising customer prices
Lowering employee wages
In each case, he or she is spending someone else’s money
“The Social Responsibility of Business Is to Increase Its Profits”
Milton Friedman
(1970)
Political consequences
Business person taking on responsibility of the government
Converts the meaning of business from a private enterprise to that of public service without proper political channels of election
Based on Smith’s notion that each doing for their own interest will result in good for society
“The Social Responsibility of Business Is to Increase Its Profits”
Milton Friedman
(1970)
Find three flaws in Friedman’s argument that the only social responsibility of a business is to increase its profits.
“Why Shouldn’t Corporations Be Socially Responsible?”
Christopher D. Stone
(1975)
Identifies four positions used in arguing against social responsibility of business
Each based on idea that corporate managers should be guided by profit rather than the good of society
Why would this be true of business people when not true of humans in other circumstances?
The promissory argument
The agency argument
The role argument
The “polestar” argument (Friedman)
“Why Shouldn’t Corporations Be Socially Responsible?”
...
Honest WorkChapter 6 Is The Social Responsibility of Busines.docx
1. Honest Work
Chapter 6: Is “The Social Responsibility of Business … to
Increase Its Profits”?
Social Responsibility and Stakeholder Theory
The Conflict
Should businesses be concerned only with maximizing profits
for shareholders?
Friedmanites, Shareholder Theory
Or, should businesses also be concerned about how their
decisions affect the community in which they operate?
Anti-Friedmanites, Stakehoder Theory
“The Social Responsibility of Business Is to Increase Its
Profits”
Milton Friedman
(1970)
For Friedman, the market represents free choices persons make
and profit is the expression of those choices
Maximum profits mean maximum good in a market society
“Social responsibility” contrary to purpose of business
Would interfere with structure of free market
“The Social Responsibility of Business Is to Increase Its
Profits”
Milton Friedman
(1970)
Responsibility
2. Businesses are artificial entities, and cannot hold real
responsibilities
Individual persons hold responsibilities
Which individuals are we talking about?
Corporate executives hold responsibilities toward their
employers
Usually, make as much money as possible within confines of
society’s rules
Difference between acting as an agent and as a principal
As employee of owners, a corporate executive acts as an agent,
based on employer’s desires
As an individual, a person acts on their own interests and
desires as a principal
Social responsibilities apply to principals (individual choice),
not agents (acting according to employer’s choice)
“The Social Responsibility of Business Is to Increase Its
Profits”
Milton Friedman
(1970)
When a corporate executive (as an agent) acts according to
some principle of “social responsibility,” he or she acts wrongly
Reduce shareholders returns
Raising customer prices
Lowering employee wages
In each case, he or she is spending someone else’s money
“The Social Responsibility of Business Is to Increase Its
Profits”
Milton Friedman
(1970)
Political consequences
Business person taking on responsibility of the government
3. Converts the meaning of business from a private enterprise to
that of public service without proper political channels of
election
Based on Smith’s notion that each doing for their own interest
will result in good for society
“The Social Responsibility of Business Is to Increase Its
Profits”
Milton Friedman
(1970)
Find three flaws in Friedman’s argument that the only social
responsibility of a business is to increase its profits.
“Why Shouldn’t Corporations Be Socially Responsible?”
Christopher D. Stone
(1975)
Identifies four positions used in arguing against social
responsibility of business
Each based on idea that corporate managers should be guided by
profit rather than the good of society
Why would this be true of business people when not true of
humans in other circumstances?
The promissory argument
The agency argument
The role argument
The “polestar” argument (Friedman)
“Why Shouldn’t Corporations Be Socially Responsible?”
Christopher D. Stone
(1975)
4. The Promissory Argument
Management promises to maximize shareholders’ profits
Response
The relationship between shareholders and managers cannot be
compared to other relationships in which “promises” carries
moral claim
Sometimes it is morally justifiable to break promises
Does not necessarily mean to maximize in every way possible in
every set of circumstances
“Why Shouldn’t Corporations Be Socially Responsible?”
Christopher D. Stone
(1975)
The Agency Argument
Shareholders designated managers as their agents
Response
Why would managers be agents of shareholders and not of other
entities?
Problems with aligning this argument with how businesses
actually operate, in which managers have rebelled against
wishes of shareholders
“Why Shouldn’t Corporations Be Socially Responsible?”
Christopher D. Stone
(1975)
The Role Argument
Corporate managers as fiduciaries, restricted in action to what
is appropriate to that role
Response
Pro-responsibility camp is not asking for anything requiring
action outside reasonable activity of that role (father as an
example)
Different moral obligations may hold differing levels of force,
and this argument does not show why it would necessarily hold
5. the most force
“Why Shouldn’t Corporations Be Socially Responsible?”
Christopher D. Stone
(1975)
The “Polestar” Argument
If managers maximize profits this will be to the benefit of
everyone
Response
Friedman argues that managers are not in a position to judge
what is good for society, that the market is the best tool for this
Judgment can be difficult, but many of our decisions are based
on moral judgments and intuitions (even business decisions)
Friedman argues that people making decisions in regards to
public goods should be publically elected
Why wouldn’t this apply to corporate directors as well, then?
There are circumstances in which the law and forces of the
market are not adequate or competent to keep things under
control
We need to identify where the traditional forces are inadequate
Conclusion: none of these arguments supports the conclusion
that businesses should only seek profits
“Corporate Moral Agency”
Peter A. French
(1977)
Corporations as “moral persons” holding responsibilities
What sort of responsibility?
The person can be held responsible (they can be held
accountable)
The action was intended or a result of an intentional act
There is a relationship of responsibility between the person and
the moral community
6. “Corporate Moral Agency”
Peter A. French
(1977)
CID Structure as meeting requirements of intentionality
Organizational flow chart regulating corporate power structure
Incorporates the acts of biological persons
Corporate decision recognition rules
The “logic” by which a corporate entity operates
Corporations have “reasons” and “interests” and “goals” just as
human beings have
“Corporate Moral Agency”
Peter A. French
(1977)
Response to some possible objections
The argument that corporations cannot be moral agents because
they do not operate according to traditional human intent is an
example of anthropocentric bias
Corporations are collectivities, but this does not necessarily
rule out their moral agency and participation
“Corporate Moral Agency”
Peter A. French
(1977)
Explain French’s idea that corporations should be treated as
full-fledged moral persons. What motivates this argument?
What are his goals? What problems might this account provoke?
How is a corporation like a person? How are they different?
Why might one argue that a corporation is or is not a moral
agent?
How do internal decisions structures influence his account?
7. Explain the significance of the CID.
“A Stakeholder Theory of the Modern Corporation”
R. Edward Freeman
(1994)
Argues that the modern corporation should be revamped to
reflect that stakeholders—and not just shareholders—should
decide how corporations act
Stakeholders are “those groups who have a stake in or a claim
on the firm . . . [including] suppliers, customers, employees,
stockholders, and the local community, as well as management”
Each has a right to not be treated as a means to an end
“A Stakeholder Theory of the Modern Corporation”
R. Edward Freeman
(1994)
The Attack on Managerial Capitalism: “In whose interest and
for whose benefit should the firm be managed?”
The Legal Argument
Changes in legal system raises question of whether entities
other than stockholders should have a claim
The Economic Argument
Economic realities make it difficult for management to act in
the best interest of stockholders
Externalities, tragedies of the commons, monopoly power, etc.
“A Stakeholder Theory of the Modern Corporation”
R. Edward Freeman
(1994)
A Stakeholder Theory of the Firm
Extension of right of stockholders
Can be seen as application of Kant’s principle of treating
8. persons as ends rather than means across all business
relationships
“A Stakeholder Theory of the Modern Corporation”
R. Edward Freeman
(1994)
Who are the stakeholders?
Owners
Employees
Suppliers
Customers
Local Community
Competitors and government in an extension of the theory
Role of Management
Also a stakeholder
Responsible for keeping relationships among stakeholders in
balance, since imbalance is bad for the firm
“Social Responsibility and Economic Efficiency”
Kenneth J. Arrow
(1973)
Nobel Prize–winning economist
Responds specifically to Friedman’s piece and explains why
there must be certain regulations in place for the free market
foundation of Friedman’s argument to work
A wholly unregulated free market will not produce the
maximum good effects from maximum profits that is at the heart
of Friedman’s argument
Argues that business could increase its efficiency and thus
benefit from a professional moral code, strenuously taught and
strictly enforced
“Social Responsibility and Economic Efficiency”
9. Kenneth J. Arrow
(1973)
The case against social responsibility
Profit proves that you are contributing to the greater good
Problems with this argument
Monopolies
Very unequal distribution of wealth
Discourages altruism
“Social Responsibility and Economic Efficiency”
Kenneth J. Arrow
(1973)
Two more cases where maximization of profits is socially
inefficient
Cases such as pollution
The corporation doesn’t pay for the harm
Cases such as used car sales
The buyer doesn’t have full knowledge
Social Responsibilities
Regulation, taxes, and legal liability
Professional code of ethics
Physicians as examples
Confidence-inspiring as well as promoting efficiency
“Corporate Social Responsibility and Crisis”
Richard Parker
(2008)
Adolf Augustus Berle
Proposed controls on business to prevent another crash like the
one in 1929
Government needs final responsibility
Modern corporations had failed stockholders as well as
10. everyone else
Only government was powerful enough to codify rights of
stakeholders
Businesses should be responsible to all stakeholders
Business should not be able to rule over the democratic process
“Corporate Social Responsibility and Crisis”
Richard Parker
(2008)
How is the current financial crisis similar to that of the Great
Depression? How does Parker frame these similarities? Does
Berle’s analysis of the financial situation of yore bear any
relevance to today?
“Business Ethics Gone Wrong”
Alexei M. Marcoux
(2000)
Discusses three major problems he sees with stakeholder theory
and argues for an alternative business ethics
Problems with Stakeholder Theory
Undermines the value of shareholder property
Makes it harder to discipline self-serving managers
Allows politics and interest groups into business, reducing
efficiency
Need for articulation of an alternative business ethic
Based on values of honesty, integrity, and fair play
Additional Resources
Find tons of resources on Business for Social Responsibility
website
The Corporate Social Responsibility Newswire website
11. 1
02. Data Modeling
1
Definition
• Data Model = a collection of concepts that can be
used to describe the structure of a database
– Structure = data types, relationships, constraints that
should hold for that data (sometimes + a set of basic
operations)
• Data Models:
– High-level/Conceptual Data Models
– Low-level/Physical Data Models
– Representational/Implementational Data Models
– Object Data Models
SCO206: Database Systems
2
12. Data Modeling Importance
• To facilitate interaction between designer, applications
programmer, end-user … even facilitate better
understanding of the organization:
– Standardize the organization’s view of data
– Allow designers to understand nature, role and scope of data
• Fact: data is viewed differently by different people e.g.
– Clerk’s view vs Manager’s view.
– Manager 1’s view vs Manager 2’s view
– Applications Programmer’s view vs End-User’s view
– Reflect the ‘blind people and the elephant analogy’
• Important that a good blueprint be available … so it won’t
matter that the different people have different views
SCO206: Database Systems
3
Example ABC Company Database
Requirements: (simplified)
• ABC Company is organized into DEPARTMENTs. Each
department has a name, number and an employee who
manages the department. We keep track of the start date
of the department manager.
• Each department controls a number of PROJECTs. Each
project has a name, number and is located at a single
location.
13. SCO206: Database Systems
4
Example ABC Company Database
• For each EMPLOYEE we store:
– PIN (or SSN)
– Address
– Salary
– Gender
– Birthdate.
• Each employee works for one department but may work on
several projects. We keep track of the number of hours per
week that an employee currently works on each project.
We also keep track of the direct supervisor of each
employee.
SCO206: Database Systems
5
Example ABC Company Database
• Each employee may have a number of
DEPENDENTs. For each dependent, we keep
14. track of
– Name
– Gender
– Birthdate
– Relationship to employee.
SCO206: Database Systems
6
2
SCO206: Database Systems
7
Business Rules
• A set of brief, precise and unambiguous
descriptions of policies, procedures or principle
within a specific organization
• When properly designed they form an important
source of entities, attributes, relationships and
constraints
• How to discover them?
15. – Company Managers, Policy Makers, Departmental
Managers, Non managerial End-Users
– Written Documentation: Company Procedures,
Standards, Operations Manuals SCO206: Database Systems 8
Translating Business Rules into Data Models
• Nouns will translate to an entity in the model
• Verbs associate the nouns … represent a
relationships
– E.g. A customer may generate many invoices
• Relationships are bidirectional. To properly identify
relationship type ask:
– How many instances of B are related to one of A?
– How many instances of A are related to one of B?
SCO206: Database Systems
9
The Entity Relationship Model (ERM)
• 1st Proposed by Peter Chen in 1976
• A graphical representation of entities, attributes
and their relationships in a database structure that
complemented relational data model concepts
SCO206: Database Systems
16. 10
Main Phases of Database Design
1. Requirements Collection and Analysis
erviews, Document Review, Observation etc. are used to
determine users’ data requirements + functional requirements
2. Create a conceptual schema
constraints
3. Implementation of the DB using a commercial DBMS
(logical design / data model mapping)
-level data model into the implementation
data model
4. Physical Design:
and file organizations.
his same time application programs are being developed
SCO206: Database Systems
11
Basic Building Blocks: Entity
• Anything about which data are to be collected
and stored.
17. – Physical: Person, Car, House
– Conceptual: company, job, course, event (e.g.
musical concert)
• Things in the mini-world that are represented
in the database. E.g. EMPLOYEE John Mwangi,
the Research DEPARTMENT, the ProductX
PROJECT
SCO206: Database Systems
12
3
Basic Building Blocks: Attributes
• Attribute: a descriptive characteristic of an entity,
– For a customer: name, phone, address, credit limit
– Each Entity has a value for its attributes
• A specific entity will have a value for each of its
attributes.
– For example a specific employee entity may have Name='John
Mwangi', PIN='123456789', Address =‘P O Box 12345,
Nyahururu 00909', Gender='M', BirthDate='09-JAN-75‘
• Each attribute has a value set (or data type) associated
with it – e.g. integer, string, subrange, enumerated type,
18. …
SCO206: Database Systems
13
Basic Building Blocks
• Relationship: An association among entities
– E.g. Agent serves customer
– Types:
• One-to-Many (1:M) Relationship
• Many-to-Many (M:N or M:M) Relationship
• One-to-One (1:1) Relationship
• Constraint: A restriction placed on data. Usually
expressed in form of rules e.g.
– Employee’s salary to have values between 6,000 and
350,000
– Each class must have one and only one teacher SCO206:
Database Systems
14
Types of Attributes
• Simple
19. – Each entity has a single atomic value for the attribute.
For example, SSN or Gender. Not divisible.
• Composite
– The attribute may be composed of several
components. E.g.
• Address (PO Box, Town, PostCode, Country). Or
• Name (FirstName, MiddleName, LastName)
– May form a hierarchy where some components are
themselves composite.
• e.g. StreetAddress (part of address) may consist of Number,
StreetName and Apartment Number
SCO206: Database Systems
15
Types of Attributes
• Single-Valued vs. Multivalued
– Single Valued: Very common e.g. Age
– Multi-valued: Entity may have multiple values for that
attribute.
For example, Color of a CAR or PreviousDegrees of a
STUDENT.
Denoted as {Color} or {PreviousDegrees}.
• Stored vs. Derived Attributes
– e.g. relationship between BirthDate and Age
• Null Values: Occur when values for the attribute are not:
20. – Not Applicable
– Not Available or
– Not Known
• Complex Attributes:
– Composite and multivalued attributes e.g. address (with its
component parts), phone number(if a residence has multiple
phones)
SCO206: Database Systems
16
Entity Types and Key Attributes
• Entities with the same basic attributes are grouped or
typed into an entity type. For example, the EMPLOYEE
entity type or the PROJECT entity type.
• Entity Set= the collection of all entities of a particular
entity type
• Important to have an attribute that provides
Uniqueness to the entity: The Key Attribute.
• Examples in real life: PIN (or SSN) of EMPLOYEE,
National ID No, Student Reg No. , company name etc.
SCO206: Database Systems
17
21. Entity Types and Key Attributes
• A key attribute may be composite → the combination
of attribute values provide the uniqueness of an entity.
It must be minimal (least number of attributes rqrd to
give uniqueness) e.g. student regno
• An entity type may have more than one key. For
example, the CAR entity type may have two keys:
– Chasis Number and
– License_Plate Number.
• Entity may have no key → a weak entity type
SCO206: Database Systems
18
4
ENTITY SET corresponding to the ENTITY TYPE CAR
SCO206: Database Systems
19
car1
((KZZ, 999Z), AE90123456, Toyota Corolla, Saloon, 1987,
(red, black))
22. car2
((KAB, 123A), WP9879872, Nissan 300ZX, 2-door, 2002,
(blue))
car3
((KZZ, 222Z), TD-9786729, Ford Capri, 4-door, 1988, (white,
blue))
.
.
.
CAR
License_Plate(Series, Number), Chasis Number, Make, Model,
Year, (Color)
Summarized Notation for ER Schema
SCO206: Database Systems
20
Entity
Weak Entity
Relationship
Attribute
23. Key Attribute
Multivalued Attribute
Identifying Relationship
Summarized Notation for ER Schema
SCO206: Database Systems
21
Composite Attribute
Derived Attribute
E1
R
E2 Total Participation of E2 In R
E1 R E2
N
1
Cardinality Ratio 1:N for E1: E2 In R
R
(min,max)
E
Structural Constraint (min,max)
24. on Participation of E in R
ER DIAGRAM
SCO206: Database Systems
22
Entity Types are EMPLOYEE, DEPARTMENT, PROJECT,
DEPENDENT
Relationships and Relationship Types
• A relation type R among n entity types E1,E2,…En
defines a set of associations or a relationship set
among entities from these entity types
• A relationship relates two or more distinct entities with a
specific meaning. For example, EMPLOYEE John Mwangi
works on the ProductX PROJECT or EMPLOYEE Joseph
Oduor manages the Research DEPARTMENT.
SCO206: Database Systems
23
Relationships and Relationship Types (1)
• Relationships of the same type are grouped or
typed into a relationship type. For example, the
WORKS_ON relationship type in which EMPLOYEEs
and PROJECTs participate, or the MANAGES
relationship type in which EMPLOYEEs and
DEPARTMENTs participate.
25. • The degree of a relationship type is the number of
participating entity types. Hence WORKS_ON
relationship has a degree of 2 (binary relationship).
SCO206: Database Systems
24
5
SCO206: Database Systems
25
• Example Relationship instances of the WORKS_FOR
relationship between
EMPLOYEE and DEPARTMENT
28. p3
r8
r9
Relationships and Relationship Types
• More than one relationship type can exist with the same
participating entity types. For example, MANAGES and
WORKS_FOR
are distinct relationships between EMPLOYEE and
DEPARTMENT, but
with different meanings and different relationship instances.
SCO206: Database Systems
27
ER DIAGRAM – Relationship Types are:
WORKS_FOR, MANAGES, WORKS_ON, CONTROLS,
SUPERVISION, DEPENDENTS_OF
SCO206: Database Systems
28
Weak Entity Types
• An entity that does not have a key attribute
29. • A weak entity must participate in an identifying relationship
type with
an owner or identifying entity type
• Entities are identified by the combination of:
– A partial key of the weak entity type
– The particular entity they are related to in the identifying
entity
type
Example:
Suppose that a DEPENDENT entity is identified by the
dependent’s first
name and birthdate, and the specific EMPLOYEE that the
dependent
is related to. DEPENDENT is a weak entity type with
EMPLOYEE as its
identifying entity type via the identifying relationship type
DEPENDENT_OF
SCO206: Database Systems
29
Weak Entity Type is: DEPENDENT
Identifying Relationship is: DEPENDENTS_OF
SCO206: Database Systems
30
30. 6
Constraints on Relationships
• Constraints on Relationship Types
– ( Also known as ratio constraints )
– Maximum Cardinality
• One-to-one (1:1)
• One-to-many (1:N) or Many-to-one (N:1)
• Many-to-many
– Minimum Cardinality (also called participation
constraint or existence dependency constraints)
• Zero (optional participation, not existence-dependent)
• One or more (mandatory, existence-dependent)
SCO206: Database Systems
31
One-to-Many (1:N) RELATIONSHIP
SCO206: Database Systems
32
33. r5
r6
r7
p1
p2
p3
r8
r9
Relationships and Relationship Types
• We can also have a recursive relationship type.
• Both participations are same entity type in different roles.
• For example, SUPERVISION relationships between
EMPLOYEE (in role of supervisor or boss) and (another)
EMPLOYEE (in role of subordinate or worker).
• In following figure, first role participation labeled with 1
and second role participation labeled with 2.
• In ER diagram, need to display role names to distinguish
participations.
SCO206: Database Systems
36. 7
Attributes of Relation Types
• A relationship type can have attributes; for
example, HoursPerWeek of WORKS_ON; its
value for each relationship instance describes
the number of hours per week that an
EMPLOYEE works on a PROJECT.
SCO206: Database Systems
37
Attribute of a Relationship Type is:
Hours of WORKS_ON
SCO206: Database Systems
38
Structural Constraints – one way to express semantics of
relationships
Structural constraints on relationships:
M:N
SHOWN BY PLACING APPROPRIATE NUMBER ON THE
LINK.
37. total (called existence dependency) or partial.
SHOWN BY DOUBLE LINING THE LINK
NOTE: These are easy to specify for Binary Relationship Types.
SCO206: Database Systems
39
Alternative (min, max) notation for relationship structural
constraints:
relationship type R
and at most max
relationship instances in R
-world constraints
Examples:
manage at
most one department.
– Specify (0,1) for participation of EMPLOYEE in MANAGES
– Specify (1,1) for participation of DEPARTMENT in
MANAGES
department can
have any number of employees.
38. – Specify (1,1) for participation of EMPLOYEE in
WORKS_FOR
– Specify (0,n) for participation of DEPARTMENT in
WORKS_FOR
SCO206: Database Systems
40
SCO206: Database Systems
41
The (min,max) notation relationship constraints
(1,1) (0,1)
(1,N) (1,1)
ABC Company ER Schema Diagram using (min, max)
notation
SCO206: Database Systems
42
8
Relationships of Higher Degree
40. d) List the names of all relationship types and specify the
(min,max) constraint on each participation of an entity type in
a relation type. Justify your choices.
e) List concisely the user requirements that led to this ER
schema design.
f) Suppose that every customer must hae at least one account
but
is restricted to at most two loans at a timem and that a bank
branch cannot have more than 1000 loans. How does this show
up on the (min,max) constraints?
SCO206: Database Systems
45
Consider the following ER-Diagram
Consider the ER diagram in previous slide:
a)List the (non-weak) entity types in the ER diagram
b)Is there a weak entity type? If so, give its name, partial key
and identifying relationship
c)What constraints do the partial key and the identifying
relationship of the weak entity type specify in the diagram?
d)List the names of all relationship types and specify the
(min,max) constraint on each participation of an entity type in a
relation type. Justify your choices.
e)List concisely the user requirements that led to this ER
schema design.
f)Suppose that every customer must hae at least one account but
is restricted to at most two loans at a timem and that a bank
41. branch cannot have more than 1000 loans. How does this show
up on the (min,max) constraints?