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The Firm’s Social
Sveinn Eldon
Does the firm have social responsibilities?
The firm has legal responsibilities
The CEO is responsible for running the
firm. He is hired by and reports to the
board of directors.
The board of directors is elected by the
shareholders and oversees the running of
the firm. The board represents the
shareholders and is supposed to see to
that their interests are paramount.
For whose benefit is the firm?
The classical view is that firms exists to
bring income to their owners.
The so-called stakeholder view of the firm
maintains that the firm exists in the
interests of its various so-called
These stakeholders are: emploees,
customers, suppliers, creditors,
shareholders, society, the world.
Social Responsibility...?
Those who maintain that the firm has
social responsibilities maintain:
The firm should always operate on an
ethical level much higher than the law
It should donate money to charities and to
’good causes’.
Should strive to maximise the quality of
life for its emploees, both inside and even
outside of the firm.
More social responsibilities...
Take the social desirability of its
operations into account.
Should use its resources to address
social problems in the communities
where it operates.
Should act as a good responsible
citizen of the socities where it
Are firms moral agents, like persons are?
Is the moral responsibility of the firm different
from the moral responsibility of the persons in
charge of it? How can a firm be a moral agent?
Is it not the persons in charge of the firm who
are moral agents and have moral responsibilities?
But firms have legal rights and legal duties, so
why can they not be seen as having moral duties
as well? Duties which are not identical with the
moral duties of the perons in charge of them? A
firm may be seen as having a moral duty to
support a cause even if its CEO is not seen as
having that duty.
May it profit the organization...
The classical view maintains that the goal of the
organisation is to bring income to its owners.
Firms should only engage in business activities or
business related activities.
Those who run the firm do not have the mandate
from the shareholders to engage in any other
Firms are not organised to deal with social issues,
and consequently are not efficient in dealing with
them. That is best left to others.
Hello big spender...
Other peoples money.
The firm managers are not managing their own
money, but other peoples.
If they are spending it on social causes, they may
be spending it in different ways than the owners
of the money would have chosen to spend it. The
managers may, after all be spending it according
to their own personal preferances. Should it not
be left to the owners of the money to make the
decisions on if and how it is spend on social
issues? Who is to say that the managers spend
the money ’better’ on social issues than would
the shareholders themselves, individually?
’What is good for General Motors is good for
Should the law not define the borders of
acceptable corporate behaviour?
Why should the firm worry about its
behaviour as long as it is legal?
Yes, but good ’brand management’ is also
good business sense.
By looking well after the reputation of the
firm and its image you look well after the
interest of the shareholders.
Too far gone...
Does it make good business sense for a
firm to reduce pollution to levels lower
than required by law?
Or is this a simple cost/benefit excercise?
In other words, it would make sense if it
would improve the repution of the firm
with its target customers to the extent
that it would increase revenue and profit
suffiently to more than offset the cost of
reducing the pollution. Or is the only
objective be to reduce the pollution, not to
increase sales and profit?
Relationships matter...
Relationships matter in the world of
The firm has a direct relationship with all
its stakeholders.
A good realtionship is not created over
night, it takes time...
And it takes sacrificies by all concerned. If
the firm is not ready to make sacrificies
for the sake of a relationship, why should
the other side?
Birds of feather....
Firms as well as individuals are known by the
company they keep.
A firm that gets a bad reputation is avoided by
other firms because they are afraid that they
might also get a bad reputation.
Acceptable behaviour standards are oblique and
the knowledge of these standards is often what
distinguishes ’outsiders’ from ’insiders’ in many
Playing the game according to these often
oblique rules, may not always be mandatory but
is certainly is necessary for long term survival.