Corporate Social Responsibility Essay

1856 words - 7 pages

Corporate social responsibility plays a major role in business ethics. It is the idea that a company should be ethically responsible towards society and the environment. It involves going beyond the law requirements and furthering the social good. Corporate social responsibility can involve activities such as ethical marketing, donating to charity, and taking green initiatives (Johns et al. 23-24). Firms partake in socially responsible roles for several reasons, whether it is driven by morals or as a strategic competitive advantage. The Stakeholder Theory of the firm presented by R. Edward Freeman best represents the notion of how and why a corporation should be socially responsible. While it may not be perfect, it proves to be stronger than either Milton Friedman or Joseph Heath’s model. Although Friedman’s Stockholder theory addresses an important relationship, he does not justify the manager’s obligations to the shareholder. Heath, on the other hand does, justify the model’s motives and morals but it remains quite vague regarding how a corporation actually fails the market. Freeman’s model provides strong moral obligations as well as strong motives; managers act on behalf of stakeholders and should therefore feel obligated to engage in ethical practices.

The first model I would like to discuss is Joseph Heath’s Market Failures Model. The market is said to fail when there is not an efficient allocation of resources (“Investopedia explains 'Market Failure'”). Heath says it fails when “the competitive market fails to produce a Pareto-efficient outcome” (123), which occurs when someone improves his or her situation without making any else worse off. A corporation fails the market if it leaves others in a worse condition in order to improve its own. To accomplish a Pareto-efficient outcome, a firm needs to use “preferred” competitive strategies (Heath 123). Preferred strategies means that a firm uses lower price, improved quality and product innovation to compete, whereas non-preferred would include polluting and selling defective products (Heath 123). Since this is nearly impossible to accomplish, it becomes very common for firms to use non-preferred strategies to compete, thereby failing the market. Heath’s model gives corporations a guide to be ethical and successful, as Heath suggests, “the state simply lacks the information needed to implement the measures needed to improve upon a marketplace outcome” (Heath 123). Thus leaving ethics to restrict the actions of a business. A corporation then behaves ethically to achieve a Pareto-efficient outcome and avoids failing the market.

Heath’s model appears to provide a solid explanation on how and why a corporation could be socially responsible, when in fact it actually raises many unanswered questions. If the goal of a Pareto-efficient outcome is impossible in the real world, why should a corporation strive to achieve it? It is understood that the model acts as a guide to reach a more ideal market...

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