Applied Business Ethics For Ethical Issues

The Conflict of Interests: CSR vs. Profit Maximization

Discuss about the Applied Business Ethics for Ethical Issues.

As mentioned by the scholars, the idea of ethical dilemma in the commercial set up can involve a number of issues. Here, for the successful completion of this essay, I have chosen the ethical dilemma or the conflict of interests occurs between the purposes of the stakeholders and the shareholders in the context of performing the corporate social responsibility, which I have experienced in my professional career, as a business consultant of a company.

In the context of business ethics, ethical issues take place when discretionary decisions can be judged by the principles derived from the idea of good and bad. In the business context, one of the major conflicts arises regarding the purpose of business (Constantinescu & Kaptein, 2015).

As mentioned by the business experts, the prime responsibility of the management is to serve the interest of the stakeholders, which is concerned to the idea of profit maximization (Schlegelmilch, 2016). However, the essence of the corporate social responsibility advocates that the business organizations needs to take any strategic decision based on the expectations related to the economic, legal, philanthropic and ethical concerns. Thus, it essentially contradicts the conventional purpose of business. Moreover, with the changed focus of the business strategies the CSR creates an ethical dilemma (Andersen, Nielsen & Høvring, 2017). In my company, as a consultant I faced such an issue. The company has to invest on CSR initiatives as I had to maintain a sustainable relationship with its stakeholders like the employees, society and government. However, the shareholders were strictly opposing the management’s decision of investing in CSR.

With a view oriented to the societal good, importance of CSR cannot be ignored.  With every organizational strategy the companies make some essential impact upon the society, employees and the ecology as well (Constantinescu & Kaptein, 2015). Moreover, the growth of the business is also dependent on the inputs collected by these stakeholders. Hence, it is important for them to incorporate the CSR. The management had successfully identified this responsibility and wanted to invest in the CSR activities for conducting a sustainable business. However, the idea of CSR strikes the liability of the management to the shareholders who have invested in the Company by trusting the management with the assurance of profit. The shareholders claimed that they invested in the company with the aim of making profit, not for philanthropy. They also threatened to their investment in occurrence of such a contribution of the company. Thus, CSR was creating a dilemma regarding the responsibility to stakeholders and shareholders (Kowalski, 2016).

Ethical Theories Supporting CSR

As mentioned by the scholars, the idea of ethical dilemma can be identified as a complex and conflicting situation that involves moral and emotional factors and last but not the least the issues related to the responsibility or liabilities. As discussed by the business experts, the idea of corporate social responsibility largely supports the key concerns of the business ethics (Schlegelmilch, 2016). It advocates the performance of the responsibilities towards the greater society.

As discussed by the philosophers, the utilitarianism theory states that an action is right if it leads to the most happiness of the greatest number of people. The idea of corporate social responsibility involves the assurance of “well being” of the greater society, which is essentially larger than the organizational management or its shareholders (Filosof, Hollinshead & Kurinko, 2015). Hence, the management’s decision of investing in the CSR activities can be claimed as “right” under the light of this ethical theory.

On the other hand, the theory of ethical egoism states that there is only one ultimate principle of conduct- the principle of self-interest (DesJardins, 2014). Hence, in the commercial context, the self interest of a business organization is profit maximization. Hence, with the ideology of this normative theory the business organization can avoid the performance of CSR. In the context of my organization, the shareholders were asking for their self interest. Moreover, according to this particular theory, the management was making an unethical step by ignoring its self interest of profit making and investing in philanthropy.

However, the key proposal of corporate social responsibility supports the idea generated by the theory of enlightened egoism. As discussed by the scholars, the philosophy of enlightened egoism states that acting in a certain way that helps others, an individual is likely to help himself (Kowalski, 2016). Here, in the context of CSR, the companies mainly follow this strategy to maintain a good relation with the community and decrease their impacts upon the society and environment to obtain a sustainable business environment within that society. Thus, the enlightened egoism thus supports CSR with the idea of providing “sustainable return” (Constantinescu & Kaptein, 2015). However, it was not essentially clear to our shareholders and they were consistently identifying the lack of strategic profit in the decision of investment in CSR.

On the other hand, philosophers have argued that the CSR needs to be performed with the idea of Kant’s categorical imperatives. This particular theory advocates any act should be done with the sake of duty only. According to Kant, categorical imperative is the only good way to act and without any expectation of reward (Bowie, 2013). Hence, performing CSR with the objective of shareholder’s return is unethical in its approach. However, as per the ideology of Kant, an act needs to be performed with the idea of “good will” which is the “act for the sake of duty”. Duty must not be judged on the consequences. Thus, the categorical imperative of Kant supports CSR as it is the duty of the commercial organizations (Patrus et al., 2013). Now, this philosophical idea made me concerned. I personally was against the idea of investing on the CSR for ensuring sustainable growth to the company. I believed that the management needs to do it as it is our responsibility to the society and the employees.

Ethical Theories Opposing CSR

Here, the stakeholder’s theory can be identified as one of the major supporting ethical ground for CSR. As mentioned by this theory, a business is behaving ethically if profits are generated for the stakeholders (Fernando & Lawrence, 2014). As per the stakeholder’s theory, the major units of a company do not only include the shareholder, but the stakeholders too, and without their input, a company cannot success in the market (Brown & Forster, 2013).  Hence, the organizational strategies and its performance need to be directed in favour of its stakeholders like, society, employees and suppliers.  Hence, I supported the idea of investing in the CSR as I found it an ethical business model.

In addition to this, the Virtue ethics propounded by Aristotle, states that the function of human beings is to use their reason in pursuit of the good lives or virtuous lives (McGhee, 2013). This virtue ethics advocates that it is important to not only doing the right thing, but also to have right outlook, motivation and sentiment in doing the good thing and being good (Idowu, Capaldi & Zu, 2013). Hence, doing the CSR act is not enough for the companies, they need to be guided with only the ideas like benevolence, humanity, generosity and honesty.

Thus, various philosophical theories have discussed the CSR with diversified ideas, which has created an essential conflict among the ideologies and an ethical dilemma for the organizations. In my professional context, I was advocating the idea of investing in the CSR activities and providing consultation in favour of this idea, whereas the shareholders were opposing my thought, which put the management in a major operational dilemma.

Now it is important for the organizations to resolve this dilemma. In such a context of ethical dilemma, the companies can opt for either performing or not performing the corporate social responsibility. As mentioned by various scholars, the main purpose of an organization is to ensuring profit for which the shareholders have invested and put their trust upon the management.

 In the philosophical context, the theories like ethical egoism supports this option of ignoring the performance of the corporate social responsibility. As mentioned by the philosophers, this normative theory states that each person ought to pursue his or her own self interest exclusively. Now, as mentioned by Milton Friedman, the exclusive duty of a commercial organization is to maximize its profit count (Schlegelmilch, 2016). Hence, the companies need to drop the idea of CSR as it creates a stress upon the financial base of the company and cut down the share of the shareholders.  However, the supports of CSR like me argue that corporate social responsibility is the “right way of conducting” a business organization. In such a context, as mentioned by the theory of Ethical egoism, there is only one ultimate principle of conduct is to behaving in such a manner so that self interest can be ensured (Idowu, Capaldi & Zu, 2013). Hence, under the theory of ethical egoism, being a commercial organization, the business institutions need to concentrate upon the benefits of the shareholders. 

The Stakeholder’s Theory and Virtue Ethics

On the other hand, the companies can opt for performing the CSR activities. A number of ethical theories support this idea of the performance of the CSR activities. The stakeholder’s theory states that there is a significant responsibility towards the stakeholders form the management’s end. Hence, the companies need to exercise the CSR activities.

On the other hand, the utilitarianism theory states that the dilemma of choosing the right path of behaving needs to be evaluated with the option’s outcome in creating greater good.  The idea of Act Utilitarianism states that an action is good if its effect produce more happiness than unhappiness (Filosof, Hollinshead & Kurinko, 2015). Hence, the companies can create a greater happiness among the stakeholders by ignoring the small scale financial interest of the shareholders. The ideology of utilitarianism supports CSR as an ethical way of behaving.

Hence, the above discussion creates a favourable decision for the performance of the CSR activities. Moreover, in the modern business context, the companies are legally bound to exercise the CSR activities (Schlegelmilch, 2016). Hence, the organizations do not have much option to avoid its requirements for performing corporate social responsibility. Hence, my company and the management had no option left but to perform the CSR activities. However, they were in a constant concern about the threat of the shareholders. In such a context, the theory of enlightened egoism provided a practical ground for CSR. As mentioned by this theory, people needs to behave ethically to ensure own happiness.

Here, the management needs to identify the ways of performing CSR, which in turn provides a long term benefit for the organization’s sustainable operation. With such a long term vision, the investment to the CSR activities can be supported by the shareholders. The CSR activities largely involve strategies like philanthropy, managing the business according to the social norms of the community, employee benefits and many more (Fernando & Lawrence, 2014). As mentioned by the business experts, maintaining the social norms, uplifting the communities or ensuring the benefits of the employees, the organizations become able to ensure a long-term business, as these provides an environment without any agitation from the stakeholders’ end (Patrus et al., 2013). Moreover, the idea of ethical egoism will provide a positive image to the organization. With the CSR activities, the companies become able to create a favourable image into the mind of the customers, which increases their business potential (Kowalski, 2016). Thus, the enlightened egoism provides a long term benefit for the company with CSR.

Ethical Solutions Proposed

As a consultant, I used this idea of enlightened egoism and talked to the shareholders of the company. I put a big picture before them and made them realize how not investing in CSR may ruin these future ideas of business expansion and increased profit by creating opposition from the society and government. Moreover, I made them realize how we can use our CSR investment step as a promotional campaign for making the brand more popular and loved by the customers. It helped me to earn the shareholder’s support in investing on the CSR and eliminating the dilemma of the management.

References:

Andersen, S. E., Nielsen, A. E., & Høvring, C. M. (2017). Communicative Dilemmas of CSR: Towards an Integrative Framework of CSR Communication. In Handbook of Integrated CSR Communication (pp. 51-69). Springer International Publishing.

Bowie, N. E. (2013). Kantian themes. In Business ethics in the 21st century (pp. 47-71). Springer Netherlands.

Brown, J. A., & Forster, W. R. (2013). CSR and stakeholder theory: A tale of Adam Smith. Journal of business ethics, 112(2), 301-312.

Constantinescu, M., & Kaptein, M. (2015). CSR Standards and Corporate Ethical Virtues: A Normative Inquiry into the Way Corporations Integrate Stakeholder Expectations. In Corporate Social Responsibility and Governance (pp. 159-180). Springer International Publishing.

DesJardins, J. R. (2014). Doing Well by Doing Good: Distinguishing the Right from the Good in Theories of Corporate Social Responsibility. In Christian Ethics and Corporate Culture (pp. 101-111). Springer International Publishing.

Fernando, S., & Lawrence, S. (2014). A theoretical framework for CSR practices: integrating legitimacy theory, stakeholder theory and institutional theory. Journal of Theoretical Accounting Research, 10(1), 149-178.

Filosof, J., Hollinshead, G., & Kurinko, R. (2015). CSR in Ukraine: cynical utilitarianism or Aristotelian ‘common good’?.

Idowu, S. O., Capaldi, N., & Zu, L. (2013). Encyclopedia of corporate social responsibility. Springer Berlin Heidelberg.

Kowalski, R. (2016). A logical response to corporate social responsibility. Environment and Social Psychology, 2(1).

McGhee, P. (2013). Virtue Ethics and CSR. In Encyclopedia of Corporate Social Responsibility (pp. 2666-2674). Springer Berlin Heidelberg.

Patrus, R., de Carvalho Neto, A. M., Coelho, H. M. Q., & de Sousa Teodósio, A. D. S. (2013). Corporate Social Responsibility and labor relations: a research agenda about internal stakeholders management in UN’s global compact signatory corporations/Empresarial e Relações de Trabalho: programa de pesquisa sobre gerenciamento dos stakeholders de empresas signatárias do pacto global da ONU/Responsabilidad Social Corporativa y relaciones laborales: agenda de estudio sobre la gestión interna de los stakeholders en corporaciones signatarias del pacto mundial de la ONU. Revista Brasileira de Gestão de Negócios, 15(46), 22.

Schlegelmilch, B. B. (2016). Global Marketing Ethics and CSR. In Global Marketing Strategy (pp. 195-220). Springer International Publishing.