Analyze the Classical and Socio Economic Theories of Corporate Social Responsibility

Analyze the classical and socio economic theories of corporate social responsibility.

Which do you choose to accept and why?

For some time now, corporate social responsibility has become a must, Public Institutions, the business world, employers, civil society, and organizations, seem to be at one in the conviction that “corporate social responsibility” is an essential element of present and future social policies, in all the continents and all the sectors. In this moment when the global market economy, itself are going through a serial internal crisis, corporate social responsibility is the answer a many problems such as: fraudulent bankruptcies, questionable purchases, cheatings in the accounts, very high manager salaries, disrespect for basic values, deregulations or disconnection between financial and economic activities. Instead of international laws.

This paper analyzes the classical and socio economic theories of corporate social responsibility.

The main representative of the classical view is Milton Friedman economist and Nobel Prize who maintains that corporate social responsibility (CSR) is based on reduce profits , reduce wages and salaries, increase prices and distort the market for investment capital, Those who adopt the classical view of the firm believe that the only social responsibilities to be adopted by business are the provision of employment and payments of taxes (Moir, 2001) . This theory is most famously taken to the extremes in the recent years for maximizing shareholder value and reflected in the views of Milton Friedman (1962, p 133) “Few trends would so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their shareholders as they possibly can”

The companies to adopt the classical theory try to make the largest profit, obey the law, meet the current expectations of society, do not spend money on philanthropic or voluntary projects. In order to increase the profit of the company. Milton Friedman cited “The social responsibility of business begins and ends with increasing profits plays less well”. Friedman believes that manager’s leading objective or even moral obligation to the firm should be to maximize profits always. This way for treating profitability and the interest of shareholders, as the primary concern and objective of privately owned business. Therefore, the manger have the obligation of work only for the shareholders and try to increase the profit of the company for the benefit of the shareholders (Beuchamp & Bowie, 1997) In the case of the manager take the decision of donate some of the company resources for philanthropic projects, this manger might harm the shareholders benefit because is incurring in illegitimate use of shareholders money (Beuchamp & Bowie, 1997)

From the 70's until now this theory was under discussion because only is beneficial for the shareholder, using mangers for unethical actions for earn more profits for the companies. In consequence the use of this theory is breaking principles in order to find the benefit of shareholder. Business today should make explicit commitments to uphold accepted values and goals, and to take account of the views and interests of a range of stakeholders, and also demonstrate through their actions that these commitments are genuine (Henderson, 2001)

On the other hand, the socio economic view or mainly called stakeholder theory, maintains the businesses are corporate citizens and like human citizens , they have the responsibilities to the society that creates and sustains them . For example, companies around the world are using now in they statements different commitments for the society, Rio Tinto statement entitled the way we works reads:

“Rio Tinto aims to develop the world’s mineral resources in a responsible manner for the long term benefit of its shareholder , employees, customers and the countries in which those resources are located”( Rio Tinto Statement )

Or ABB in their web-site show a key paragraph in their guide:

“ABB's vision is to create value. We create value for our customers by making them opportunities to learn, grow and share in the value that they create. We manage for value to meet or exceed the expectations of our shareholders. For the communities where we operate and for society at large, we create value by living our commitment to sustainable development.”(ABB Statement)

That example show us how the managers and stakeholders of the big corporations or companies should be concerned with financial viability over the