Formative assignment MGE
- 1. MANAGING IN THE GLOBAL ENVIRONMENT FORMATIVE ASSIGNMENT MATTAR - MÜLLER - NEUMANN Friday, 13 July 12
- 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, Friday, 13 July 12
- 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). Friday, 13 July 12
- 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? Friday, 13 July 12
- 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. Friday, 13 July 12
- 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 Friday, 13 July 12
- 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. Friday, 13 July 12
- 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. Friday, 13 July 12
- 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. Friday, 13 July 12