A Business Has Moral Responsibilities to All Stakeholders

Introduction

A business organization has more to do other than just making profits. There must be people involved for the organization to make profits. These people are the company’s stakeholders. They include workers, owners of the company, the management, consumers, and the general society. There are two theories that are usually conflicting within the business concept. The first one is the stakeholder theory, which suggests that a business has more to do other than just making profits.

Firms should take up CSR roles, in addition to accumulating profits. On the other hand, the shareholders theory states that a business organization has only one aim, which is to make as much profit as possible. The two theories have initiated a lot of debate on whether a business should have any moral responsibility to its stakeholders or whether it should just focus on maximizing its profits. This conflict has created problems in organizations¹.

Managers act like agents to each of the rest of the stakeholders. They are under obligation to meet the needs of each stakeholder. Managers do not know which theory to obey as a result of the conflicting theories. This is an issue that affects their performance. The main contributors in this debate are the shareholders whose stand is that an organization should only focus on maximizing profits. Conversely, stakeholders feel that companies need to be morally responsible. A firm gains a lot by engaging in activities that are morally right. This essay argues that a business has moral responsibilities to all stakeholders and points out at the benefits that it will accrue from being responsible.

A business has moral responsibilities to all stakeholders

A business organization should focus on more than just making profits. It should act in a citizenship manner or a neighborhood manner by exercising good corporate citizenship or neighborhood. A business organization carries out a number of activities in its bid to make profits.² These activities may have negative or positive effects on the community. It is expected that organizations should take full responsibility, regardless of the effects their activities have on the society.

There are organizations whose activities affect the environment, as well. Members of society are important stakeholders in an organization. They should be considered as important as any other member of the organization. It is important to note that the organization needs to have a strong brand name for it to enhance its chances of success in the current business environment. For it to build its brand image, the firm has to have a good reputation in the society.

The society forms the customer base for the organization and they are the potential customers. The organization, therefore, needs to maintain the society or attract the society to buy its products and services. Being socially and morally responsible to the society is important in that it makes society members gain trust in the organization. The overall effect is that the organization gets a large share of loyal customers. This gives it a competitive advantage. The firm is able to make more income and satisfy the shareholders’ needs.

For those organizations whose activities affect the environment, failure to be morally responsible may find them in conflict with the law of land. The issue of corporate responsibility has been in the limelight for a period of over three decades now.³ The executives of business organizations have been in a heated debate on whether the organizations should be morally responsible or not. Initially, they believed that organizations should only focus on maximizing profits.

However, this belief has over the years faded gradually and executives have started learning that they have more to do other than just make profits. In the 1960s, social activist groups advocated for corporate responsibility among organizations. Later in the 1970s, the legislation made it clear that organizations should be responsible for their environmental effects. It is around this year that movements such as the Environmental Protection Agency (EPA), the Occupational Safety and Health Administration (OSHA), the Equal Employment Opportunity Commission (EEOC), as well as the Consumer Product Safety Commission (CPSC) were formed.

These movements were aimed at ensuring that organizations took the responsibilities of their effects on the environment.⁴ In addition, they also ensured that employees were accorded the treatment they deserved for them to perform well in their duties. Further, the CPSC aimed at protecting and ensuring the well-being of customers. Organizations should not sell sub-standard goods and services that could have negative effects on customers in the name of making profits.

A business organization cannot make profits on its own. As mentioned earlier, there must be other players who facilitate the creation of wealth. Milton Friedman in “his book postulated that the main objective of an organization is to make as much profits as possible.”⁵ This is what was later expounded to come up with the shareholders theory. The theory was later contradicted by Henry Ford whose idea was that a business organization should not only be perceived in the context of making profits, but should also be perceived in a wider context. Ford once quoted that “a business that makes nothing but money is a poor kind of business.⁶”

The concept by Henry Ford gained more support. Other contributions to add on the same indicated that while maximizing profits is the main objective of any business organization, profits can be viewed as a means instead of being seen as an end.

All organizations want to survive in the long run. No organization is formed with the aim of operating within a foreseeable future. According to the ongoing concern, a business organization is expected to be in operation for an infinite period. For an organization to survive for such a long time, it should maintain its relationship with the various stakeholders. In turn, for it to maintain this relationship the firm has to play some roles in the society, as well as to the other stakeholders.

This brings the organization back to the issue of moral responsibility to its stakeholders. The organization has to be morally responsible to its stakeholders in order to maintain its relationship with them and ensure long term survival. This is beneficial to shareholders as well since they continue getting wealth for a long period. It is much better than in the case where the organization just focuses on maximizing profits and only does it for a short period of time, after which it is likely to cease operations due to lack of trust from stakeholders. For this reason, most business players have agreed that organizations should be socially responsible. However, it has not been clear on the nature and magnitude of responsibility.

As indicated in the classical theory, businesses are called upon to embrace moral practices since they are mandated to behave in morally acceptable ways. This concept was seen to entail two principles. One is that the organization should respect the rights of individuals and ensure that they do not harm people. The principle was based on what was referred to as deontological ethical reasoning.⁷ As per the second tenet, organizations are called upon to own up to their actions and their resultant effects. The organization is expected to maintain a balance in the relationship it has with the other groups that it interacts with in its day-to-day activities.

By doing so, the organization is in a position to maximize its benefits, as well as those groups’ benefits. This concept is in line with utilitarianism. According to utilitarianism, the best course of action an individual or an organization is supposed to take is the one that would maximize utility to all the involved parties.⁸ The organization, therefore, benefits from being morally responsible and its stakeholders, including shareholders, also benefit.

Thesis defense against possible criticisms

This thesis is subject to a number of criticisms, holding that the organization’s main objective is to maximize profits and shareholder wealth. However, an organization that only aims at increasing its profits is not likely to survive for a long period of time. For an organization to be in the competition for a long period, it should have a competitive advantage. One way to gain a competitive advantage is through building a strong brand image.

This is done by establishing a close and strong relationship with its stakeholders. In order to ensure the close relationship, the organization should be morally and socially responsible to these players. Being morally responsible to the stakeholders, therefore, ensures maximum wealth to shareholders. This meets the requirements of shareholders theory and at the same time the requirements of the stakeholder theory are met.

Conclusion

The debate among various parties involved in organizations on whether companies should be morally responsible or not is one that has been there for a long time. Being socially responsible gives the organization a competitive advantage in that it establishes a long term relationship with its stakeholders. In addition, a company that observes social responsibility motivates employees and enables them to perform to their best. Customers become loyal to the organization. This helps in building a strong brand image. Customers are the determinants of the organizational performance. They should, therefore, be treated in a manner that ensures maximum satisfaction. In a nutshell, organizations are answerable to all stakeholders; therefore, they must undertake all their activities with a high sense of moral responsibility.

Bibliography

Carroll, Archie, and Ann Buchholtz. Business & Society: Ethics and Stakeholder Management. Mason: CL-South-Western Cengage Learning, 2010.

Flynn, Gabriel. Leadership and Business Ethics. Dordrecht: Springer, 2008.

Jeremy, Bentham. Utilitarianism. Charleston: Bibliobazaar, LLC, 2009.

Johannes, Ronald, and Jeurissen Ronald. Ethics & Business. Assen: Van Gorcum, 2007.

Simeon, Scott. “Corporate Social Responsibility and the Fetter of Profitability.” Social Responsibility Journal 3, no. 4 (2007): 31–39.

Tittle, Peg. Ethical Issues in Business: Inquiries, Cases, and Readings. Ontario: Broadview Press, 2000.

Weiss, Joseph. Business Ethics: A Stakeholders and Issues Management Approach. NSW: South-Western Cengage Learning, 2009.

Footnotes

1. Ronald, Johannes and Ronald, Jeurissen, Ethics in business, (Assen: Van Gorcum, 2007), 29.
2. Joseph, Weiss, Business Ethics: A Stakeholders and Issues Management Approach, (NSW: South-Western Cengage Learning, 2009), 63.
3. Scott, Simeon, “Corporate Social Responsibility and the Fetter of Profitability,” Social Responsibility Journal 3, no. 4 (2007): 32.
4. Gabriel, Flynn, Leadership and Business Ethics, (Dordrecht: Springer, 2008) 92.
5. Peg, Tittle, Ethical Issues in Business: Inquiries, Cases, and Readings, (Ontario: Broadview Press, 2000) 29.
6. ibid.
7. Archie, Carroll and Buchholtz Ann, Business & Society: Ethics and Stakeholder Management, (Mason: CL-South-Western Cengage Learning, 2010) 13.
8. Bentham, Jeremy, Utilitarianism, (Charleston: Bibliobazaar, LLC, 2009) 23.