Bus 351 Research Paper
Social Contract Between Business & Society in the U.S. by Luther Wilson
Position Paper
9/02/2014
Luther Wilson
Bus 351 – Business, Society and Government
Assignment – Position Paper
The assignment that I chose was: Research and discuss the concept of the social contract between business and society in the U.S. First I had to research what a social contract consisted of. After looking at various companies ideals of social contracts, I came to the conclusion that there is a clear expectation that businesses have an obligation to improve society’s status. The overall consensus is that businesses should have their employee’s interests at heart without having to break any rules of justice in society. Bottom line: as long as the agreements between society and businesses are ethical, their relationship will remain civil. While researching my topic, I read an excerpt from Purity Makandi’s article: “Social Contact Theories in Business”. (The Corporate Contract: Actual or Fictional?) He stated that: “84% of corporate executives believe that society expects businesses to take a more active role …show more content…
in environmental, social, and political issues, now”. He also stated that: “20% of companies surveyed said their philanthropic efforts were very or extremely effective in meeting social or business goals”. A recent report that was released by Maverick Research and compiled by the IT market research group, Gartner, stated that: “The Capitalist structure as we know it is being threatened by Web-inspired values”. (Page 123) The report further suggested that the next generation of workers will need to have a more egalitarian and democratic approach to their decision making process. Many of the authorities that I have researched have referenced the “99%” theory that insists that this percentage, of all employees, is the backbone of all companies. These employees constitute the driving force that allows these companies to remain profitable. According to Dutch organizational researcher Geert Hofstede:” The United States already has a relatively low power distance index and the country was founded on the premise of “liberty and justice for all”. (U.S. State of Affairs, page 262)Furthermore, the constant communication between management and the employees is a normal process. Social contracts imply that businesses have a moral obligation to improve the societies that they operate in. This can only be achieved when businesses keep their employees interests in mind. In essence, the members of any society allow businesses to operate in establishments to provide specific benefits to that community. These benefits include: enhanced decision-making, use of modern technology and resources, improving the capacity of acquisition, and economic efficiency. It is inferred that society will only allow businesses to exist if these societal benefits are met. There has been a long-standing debate about what businesses real role in society should be.
Renowned author Milton Friedman stated that: “The business of business is business”. He believes that society’s interests are in direct contrast to corporate management’s ideologies. In an attempt to promote their own causes and still enlist the support of society, organizations have implemented Corporate Social Responsibility (CSR). This concept proves to be a disillusioned attempt by companies that claim to already be practicing CSR, to satisfy campaign groups that insist that they need to do more to mitigate their social issues. As other countries in the world, especially Continental and Central Europe are moving toward the Anglo-Saxon shareholder value model; many debates arise and prove to have global
significance. Society, in general, believes that organizations should find a way to incorporate social issues into their business strategies in such a way as to reflect their real business goals. Large companies have to represent themselves in a way that not only reflects their social contribution but, also, defines their ultimate purpose. This ultimate purpose should be more subtle than” the ‘business of business is business’ philosophy and less defensive than the more current ‘Corporate Social Responsibility’ views. To support corporate society’s causes, their relationship needs to be viewed as an ‘implicit social contract’ that satisfies the needs of both sides. In order to understand the interests of both parties in these debates, we must first analyze the limitations that both ideological views have. Let’s start with the ‘business of business’ is business’ ideology ---- the issue is not just about legalities. In most countries, legal obligations are primarily to the shareholders. Award winning researcher and author Ian Davis points out that: “The problem with ‘the business of business is business’ mindset is that it tends to blind management to two important realities. The first is that social issues are not so much tangential to the business of business as fundamental to it. From a defensive view, companies that ignore public sentiment make themselves vulnerable to attack”. He went on to mention that the second point that the ‘business of business is business’ philosophy theory obscures is closely related to the first for many companies. Large companies need to address questions surrounding their legitimacy and their ethical practices. They need to tackle these questions in both words and actions. Companies that treat social issues as merely an unjustified attack on them or an irritating distraction are turning a blind eye to the impeding forces that will inevitably affect their future and their ability to sustain a competitive advantage in their fields. Although the pressure that companies face to address their social responsibilities may not be immediate, there is no reason for them to be hesitant or delay tackling them. Looking at this issue from a share-holder- value perspective, more than 80% of all American and European public markets project their company’s profits beyond a three year period and have to be ever conscious of how social issues can affect those projections. There are many examples of the impact that social issues have on businesses success. For instance, the pharmaceutical industry has been under fire over the past decade for issues like the public’s perception of the high prices that they are charging for HIV drugs in poverty stricken and developing countries. These concerns have led to a toughening in the regulatory environment. Another example can be seen in the food and restaurant industries. The growing debate over obesity has resulted in controls being placed on the marketing of unhealthy foods. Even in financial institutions, there are increasing concerns as to mis-selling of products and interest rates. Because of their scrutiny, changes have been made to their core business practices and their entire industry structure. Big retailers have not escaped their social responsibilities and have resulted in their resistance to open new stores which has caused a stifling in their growth potential. We can, also, see the affects that the social and political pressures has had on the tobacco industry which has caused a reshaping and redefining process. Looking deeper into the social contract that businesses have with U.S. societies, there are limitations on both CSR and ‘business of business is business’ thinking models. In the ‘business of business is business’ thinking, Businesses need to implement explicit processes that insure that social issues and the increasing social forces are discussed at the highest levels of their organizations. This would mean that the responsibility of educating their board of directors lies on the shoulders of the executive managers. Broad metrics need to be developed that would describe all of the relevant issues and the steps that would be taken to address these issues needs to be precise and attainable. Looking at the implicit social contract between big business and society, detractors have successfully represented the contract as a one-way bargain that only benefits businesses at the expense of society. In reality, businesses that attempt to implement and manage their CSR have resulted in many social benefits as well as costs. There are two sides to any contact and businesses have to understand that in return for the ability to operate it is subject to following rules and are conscious of other restraints. Governments, consumer groups, media, and lawyers will tend to mobilize around particular issues according to their concerns and perceptions. This variability can put the social contract under scrutiny. The recent attacks on big business in America are due to the shifting of the terms of the social contract. It is not enough for companies to understand the terms of their social contracts but, also, actively manage them. In order to successfully manage the terms of their social contracts, companies have to engage in transparent reporting, change their regulatory approach, restructure their R&D departments to capture future opportunities and reduce perceived liabilities, and redevelop and deploy voluntary standards of behavior. The reshaping and restructuring of the conduct of industries, on a global basis, is important in that the misdeeds of one company will not be repeated in any sector of any company. Supporters of CSR and social contracts argue that when companies implement and manage them, the results lead to long term profits. Critics of CSR and social contracts insist that they distracts from the roles of businesses. McWilliams and Siegel’s article (200) published in Strategic Management Journal, they researched and cited the relationship between financial and social reporting of companies that used CSR as their foundation. They reported that regardless to contradictory results of previous studies that registered positive and negative impacts on a company’s financial performance, when CSR and investments in Research and Development, neutral impacts to their financial performance will occur. Today, corporations are finding themselves having to conduct business in complex institutional environments. Partnerships and alliances with CSOs and government are seriously addressing global critical issues of poverty, health, and gender equality has increased in the last decade. These partnerships are increasingly breaking down the traditional boundaries of functions and responsibilities surrounding producing goods and providing services. The conventional models of philanthropy are being phased into not-for-profit and for-profit business alliances. U.S. technology entrepreneurs who have managed to accumulate a lot of wealth partnering and investing in firms like AOL, eBay, and Google by reinventing charities and restructuring them for not-for-profit/for-profit business ventures that instill a solid social statement into their core mission statement. For example, hedge funds like The Children’s Investment Fund (TCI) that is recognized for short-term horizons have become involved in capacity building and technology development enterprises in poor and developing countries. More than ever, new institutional structures are having a profound effect on how large global corporations will run their businesses in the future, under the new social contract premise. It is common knowledge that if government fails, businesses cannot prosper. Only the government can create and sustain an environment that insures predictability, stability, and the fairness that the private sector needs to organize its affairs. It takes public discourse in order to define a new social contract and instill good business relations. The Enron debacle has seriously damaged the public’s faith in corporate governance and how U.S. businesses operate. The ideologies of privatization, market fundamentalism, deregulation, and unbridled free trade have all been affected by the recent unethical misgivings of corporations. Although things are getting better, many issues remain unsettled, including long-term responsibility of retraining of workers dislocated by globalization, healthcare, and employee pensions. Questions are still being pondered like: Is the government the primary provider, the provider as a last resort, a regulator of business, or a partner of business to build a sustainable society? These issues are a stiff reminder of both the unraveling of the social contract and the challenges that lie ahead for creating a new version commensurate of 21st century values and realities. As a result of all the articles and books that I have read, when CSR and social contacts are implemented and managed, long-term profits will occur. These profits are not restricted to the companies; society gains occur in this process. While researching my topic, I came across ISO 26000 and read that it is the recognized international standard for CSR. Reading it helped me to appreciate just how important the social contract is to the sustainability of companies and their industries are. As CSR and social contracts evolve, businesses and companies should be able to manage to co-exist in a world where tolerance is a norm and compassion and respect are the foundations.
References:
www.bccc.net/social-resposibility
www.amedius.com/Sustanibility
www.constitution.org/jjjr/socon.htm
www.academia.edu/.../Corporate_Social_Responsibility_E
www.emeraldinsight.com/journals.htm
Position Paper
9/02/2014
Luther Wilson
Bus 351 – Business, Society and Government
Assignment – Position Paper
The assignment that I chose was: Research and discuss the concept of the social contract between business and society in the U.S. First I had to research what a social contract consisted of. After looking at various companies ideals of social contracts, I came to the conclusion that there is a clear expectation that businesses have an obligation to improve society’s status. The overall consensus is that businesses should have their employee’s interests at heart without having to break any rules of justice in society. Bottom line: as long as the agreements between society and businesses are ethical, their relationship will remain civil. While researching my topic, I read an excerpt from Purity Makandi’s article: “Social Contact Theories in Business”. (The Corporate Contract: Actual or Fictional?) He stated that: “84% of corporate executives believe that society expects businesses to take a more active role …show more content…
in environmental, social, and political issues, now”. He also stated that: “20% of companies surveyed said their philanthropic efforts were very or extremely effective in meeting social or business goals”. A recent report that was released by Maverick Research and compiled by the IT market research group, Gartner, stated that: “The Capitalist structure as we know it is being threatened by Web-inspired values”. (Page 123) The report further suggested that the next generation of workers will need to have a more egalitarian and democratic approach to their decision making process. Many of the authorities that I have researched have referenced the “99%” theory that insists that this percentage, of all employees, is the backbone of all companies. These employees constitute the driving force that allows these companies to remain profitable. According to Dutch organizational researcher Geert Hofstede:” The United States already has a relatively low power distance index and the country was founded on the premise of “liberty and justice for all”. (U.S. State of Affairs, page 262)Furthermore, the constant communication between management and the employees is a normal process. Social contracts imply that businesses have a moral obligation to improve the societies that they operate in. This can only be achieved when businesses keep their employees interests in mind. In essence, the members of any society allow businesses to operate in establishments to provide specific benefits to that community. These benefits include: enhanced decision-making, use of modern technology and resources, improving the capacity of acquisition, and economic efficiency. It is inferred that society will only allow businesses to exist if these societal benefits are met. There has been a long-standing debate about what businesses real role in society should be.
Renowned author Milton Friedman stated that: “The business of business is business”. He believes that society’s interests are in direct contrast to corporate management’s ideologies. In an attempt to promote their own causes and still enlist the support of society, organizations have implemented Corporate Social Responsibility (CSR). This concept proves to be a disillusioned attempt by companies that claim to already be practicing CSR, to satisfy campaign groups that insist that they need to do more to mitigate their social issues. As other countries in the world, especially Continental and Central Europe are moving toward the Anglo-Saxon shareholder value model; many debates arise and prove to have global
significance. Society, in general, believes that organizations should find a way to incorporate social issues into their business strategies in such a way as to reflect their real business goals. Large companies have to represent themselves in a way that not only reflects their social contribution but, also, defines their ultimate purpose. This ultimate purpose should be more subtle than” the ‘business of business is business’ philosophy and less defensive than the more current ‘Corporate Social Responsibility’ views. To support corporate society’s causes, their relationship needs to be viewed as an ‘implicit social contract’ that satisfies the needs of both sides. In order to understand the interests of both parties in these debates, we must first analyze the limitations that both ideological views have. Let’s start with the ‘business of business’ is business’ ideology ---- the issue is not just about legalities. In most countries, legal obligations are primarily to the shareholders. Award winning researcher and author Ian Davis points out that: “The problem with ‘the business of business is business’ mindset is that it tends to blind management to two important realities. The first is that social issues are not so much tangential to the business of business as fundamental to it. From a defensive view, companies that ignore public sentiment make themselves vulnerable to attack”. He went on to mention that the second point that the ‘business of business is business’ philosophy theory obscures is closely related to the first for many companies. Large companies need to address questions surrounding their legitimacy and their ethical practices. They need to tackle these questions in both words and actions. Companies that treat social issues as merely an unjustified attack on them or an irritating distraction are turning a blind eye to the impeding forces that will inevitably affect their future and their ability to sustain a competitive advantage in their fields. Although the pressure that companies face to address their social responsibilities may not be immediate, there is no reason for them to be hesitant or delay tackling them. Looking at this issue from a share-holder- value perspective, more than 80% of all American and European public markets project their company’s profits beyond a three year period and have to be ever conscious of how social issues can affect those projections. There are many examples of the impact that social issues have on businesses success. For instance, the pharmaceutical industry has been under fire over the past decade for issues like the public’s perception of the high prices that they are charging for HIV drugs in poverty stricken and developing countries. These concerns have led to a toughening in the regulatory environment. Another example can be seen in the food and restaurant industries. The growing debate over obesity has resulted in controls being placed on the marketing of unhealthy foods. Even in financial institutions, there are increasing concerns as to mis-selling of products and interest rates. Because of their scrutiny, changes have been made to their core business practices and their entire industry structure. Big retailers have not escaped their social responsibilities and have resulted in their resistance to open new stores which has caused a stifling in their growth potential. We can, also, see the affects that the social and political pressures has had on the tobacco industry which has caused a reshaping and redefining process. Looking deeper into the social contract that businesses have with U.S. societies, there are limitations on both CSR and ‘business of business is business’ thinking models. In the ‘business of business is business’ thinking, Businesses need to implement explicit processes that insure that social issues and the increasing social forces are discussed at the highest levels of their organizations. This would mean that the responsibility of educating their board of directors lies on the shoulders of the executive managers. Broad metrics need to be developed that would describe all of the relevant issues and the steps that would be taken to address these issues needs to be precise and attainable. Looking at the implicit social contract between big business and society, detractors have successfully represented the contract as a one-way bargain that only benefits businesses at the expense of society. In reality, businesses that attempt to implement and manage their CSR have resulted in many social benefits as well as costs. There are two sides to any contact and businesses have to understand that in return for the ability to operate it is subject to following rules and are conscious of other restraints. Governments, consumer groups, media, and lawyers will tend to mobilize around particular issues according to their concerns and perceptions. This variability can put the social contract under scrutiny. The recent attacks on big business in America are due to the shifting of the terms of the social contract. It is not enough for companies to understand the terms of their social contracts but, also, actively manage them. In order to successfully manage the terms of their social contracts, companies have to engage in transparent reporting, change their regulatory approach, restructure their R&D departments to capture future opportunities and reduce perceived liabilities, and redevelop and deploy voluntary standards of behavior. The reshaping and restructuring of the conduct of industries, on a global basis, is important in that the misdeeds of one company will not be repeated in any sector of any company. Supporters of CSR and social contracts argue that when companies implement and manage them, the results lead to long term profits. Critics of CSR and social contracts insist that they distracts from the roles of businesses. McWilliams and Siegel’s article (200) published in Strategic Management Journal, they researched and cited the relationship between financial and social reporting of companies that used CSR as their foundation. They reported that regardless to contradictory results of previous studies that registered positive and negative impacts on a company’s financial performance, when CSR and investments in Research and Development, neutral impacts to their financial performance will occur. Today, corporations are finding themselves having to conduct business in complex institutional environments. Partnerships and alliances with CSOs and government are seriously addressing global critical issues of poverty, health, and gender equality has increased in the last decade. These partnerships are increasingly breaking down the traditional boundaries of functions and responsibilities surrounding producing goods and providing services. The conventional models of philanthropy are being phased into not-for-profit and for-profit business alliances. U.S. technology entrepreneurs who have managed to accumulate a lot of wealth partnering and investing in firms like AOL, eBay, and Google by reinventing charities and restructuring them for not-for-profit/for-profit business ventures that instill a solid social statement into their core mission statement. For example, hedge funds like The Children’s Investment Fund (TCI) that is recognized for short-term horizons have become involved in capacity building and technology development enterprises in poor and developing countries. More than ever, new institutional structures are having a profound effect on how large global corporations will run their businesses in the future, under the new social contract premise. It is common knowledge that if government fails, businesses cannot prosper. Only the government can create and sustain an environment that insures predictability, stability, and the fairness that the private sector needs to organize its affairs. It takes public discourse in order to define a new social contract and instill good business relations. The Enron debacle has seriously damaged the public’s faith in corporate governance and how U.S. businesses operate. The ideologies of privatization, market fundamentalism, deregulation, and unbridled free trade have all been affected by the recent unethical misgivings of corporations. Although things are getting better, many issues remain unsettled, including long-term responsibility of retraining of workers dislocated by globalization, healthcare, and employee pensions. Questions are still being pondered like: Is the government the primary provider, the provider as a last resort, a regulator of business, or a partner of business to build a sustainable society? These issues are a stiff reminder of both the unraveling of the social contract and the challenges that lie ahead for creating a new version commensurate of 21st century values and realities. As a result of all the articles and books that I have read, when CSR and social contacts are implemented and managed, long-term profits will occur. These profits are not restricted to the companies; society gains occur in this process. While researching my topic, I came across ISO 26000 and read that it is the recognized international standard for CSR. Reading it helped me to appreciate just how important the social contract is to the sustainability of companies and their industries are. As CSR and social contracts evolve, businesses and companies should be able to manage to co-exist in a world where tolerance is a norm and compassion and respect are the foundations.
References:
www.bccc.net/social-resposibility
www.amedius.com/Sustanibility
www.constitution.org/jjjr/socon.htm
www.academia.edu/.../Corporate_Social_Responsibility_E
www.emeraldinsight.com/journals.htm