Week 4: Corporate Conscience/Social Responsibility
Theme 1: Do Corporations Have a Conscience?
The idea of a corporation evolved as a legal fiction, which identified a business as a “person” separating it from the people who own or run the business. This fiction was invented to protect business owners from personal liability for business failures. Its invention encouraged commerce by making it more inviting for people to invest in new businesses. The question then becomes, Can a piece of paper identifying the business as a “corporate person” be a person in the true sense of the word? Can corporations make ethical decisions just as you or I can do? Some philosophers viewed the corporation as a machine and argued that because of its structure that a corporation cannot make ethical decisions, and thus that it cannot be held to be ethically responsible. Only the people running the corporation can be held ethically responsible. But others, like Kenneth Goodpaster and John Mathews, suggested that the corporation decision structure, like the individual can collect data, monitor work, employee and business conditions, environmental issues (internal and external) and; therefore, should be able to decide in the same rational way as the individual. Trends with recent Supreme Court decisions in the US suggest that the notion of how “alive” a corporation is may be changing.
The debate over whether corporations have a conscience is fundamental to the idea of whether they should be expected to act ethically. To hold a business responsible for its moral actions in society it is necessary to determine whether the company can act like the individual or it is the people who run the organization that must possess the ethical conscience. This week we will examine the debate in this theme.
Theme 2: Corporate Social Responsibility
Corporate Social Responsibility is the corollary question to the idea that corporations are alive and capable of making decisions. Assuming they are capable, the questions of the degree and scope of this responsibility remains unanswered. Two viewpoints are the narrow view expounded by Milton Friedman, and the broad view. Friedman stated that the only social responsibility a corporation has is to make and maximize profit. The broad view, held by most philosophers is that corporations have both social and profit making as its responsibility. (Stockholder vs. Stakeholder Theory)
Does a business have a moral duty to the society in which it lives to operate ethically? This question is the debate that rages among business owners and their stakeholders. This week we will look at some of the arguments for against the question.
Learning Activity #1: The Pressure to Overstate Stock Valuation
You have been the Chief Financial Officer (CFO) for a large manufacturing company for 15 years. The Companyâ€™s year end is March 31 and you are finishing the year end accounts.You have recently been advised by the Chief Operating Officer (COO) of a significant level of slow moving stock. The stock in question is now more than nine months old and would normally have been written down some months previously.The shareholders are trying to sell the Company and the Chief Executive Officer (CEO), who is also the majority shareholder, has told you that it is not necessary to write down the stock in the year end accounts. You are sure that the CEO wants the financial statements to carry an inflated stock valuation because he has found a prospective buyer for the Company. The CEO has mentioned to you that if the proposed deal is successful, all employees will keep their jobs and you will receive a substantial pay increase.What are the ethical implications of this scenario and how would you resolve them? Are there any ethical theories that might support your answer?
Learning Activity #2: Corporate Social Responsibility: What’s the Big Deal?
One of the most contentious debates among scholars has centered on the proper role for a corporation in the pursuit of its business. In large measure the debate has crystallized around two points of view. On the one hand, some believe that a corporationâ€™s chief responsibility role is to make and maximize profit. This belief has often been referred to as the Friedman Approach in homage to the economist, Milton Friedman.Â Friedman espoused the view that as long as a corporation stayed within the rules, its only responsibility was to return the maximum profit to its shareholders. On the other hand, other scholars have asserted that the social responsibility for a corporation extends beyond just making a profit and includes a responsibility to act in a manner that promotes and supports the welfare of society at large.What do you think about this so called â€œShareholder vs. Stakeholderâ€ debate? Do you have any personal experiences where you have observed the effects of this debate in terms of corporate actions? On which side of the argument do you come down on and why?