Social Responsibility and Policy

Some strategists agree with Ralph Nader, who proclaims that organizations have tremendous social obligations. Nader points out, for example, that ExxonMobil has more assets than most countries, and because of this, such firms have an obligation to help society cure its many ills.

Other people, however, agree with the economist Milton Friedman, who asserts that organiza­tions have no obligation to do any more for society than is legally required. Friedman may con­tend that it is irresponsible for a firm to give monies to charity.

Do you agree more with Nader or Friedman? Surely we can all agree that the first social responsibility of any business must be to make enough profit to cover the costs of the future, because if this is not achieved, no other social responsibility can be met. Indeed, no social need can be met if the firm fails. Strategists should examine social problems in terms of potential costs and benefits to the firm and focus on social issues that could benefit the firm most. For example, if a firm avoids cutting jobs to protect employees’ livelihood, and that decision forces the firm to liquidate, then all the employees lose their jobs. As indicated in Academic Research Capsule 10-3, most economists suggest that firms should not engage much, if any, in philanthropy, because simply making a profit is difficult, and shareholders expect a high return on their investment.

1. Does It Pay to Be Socially Responsible?

Economists generally say no, and philanthropists say yes to this question. Recent research by Barnett and Salomon examined the relationship between corporate social performance (CSP) and cor­porate financial performance (CFP). They hypothesized, and then confirmed, that the CSP-CFP relationship is U-shaped. Specifically, Barnett and Salomon reported that firms with low CSP have higher CFP than firms with moderate CSP, but firms with high CSP have the highest CFP. They also found that firms with the highest CSP generally have the highest CFP. In addition, the researchers reported that the accrual of social responsibility deeds causes the benefits of CSP to increase at a higher rate than the costs, producing an even­tual upturn in the CSP-CFP relationship.

Source: Based on Michael Barnett and Robert Salomon, “Does It Pay to Be Really Good? Addressing the Shape of the relationship Between Social and Financial Performance,” Strategic Management Journal, 33 (2012): 1304-1320.

2. Design and Articulate a Social Policy

The term social policy embraces managerial philosophy and thinking at the highest level of the firm, which is why the topic is covered in this text. Social policy concerns what responsibilities the firm has to employees, consumers, environmentalists, minorities, communities, shareholders, and other groups. After decades of debate, many firms still struggle to determine appropriate social policies. The impact of society on business and vice versa is becoming more pronounced each year. corporate social policy should be designed and articulated during strategy formula­tion, set and administered during strategy implementation, and reaffirmed or changed during strategy evaluation.¹¹

Firms should strive to engage in social activities that have economic benefits. Merck & Co. once developed the drug ivermectin for treating river blindness, a disease caused by a fly-borne parasitic worm endemic in poor tropical areas of Africa, the Middle East, and Latin America. In an unprecedented gesture that reflected its corporate commitment to social responsibility, Merck then made ivermectin available at no cost to medical personnel throughout the world. Merck’s action highlights the dilemma of orphan drugs, which offer pharmaceutical companies no economic incentive for profitable development and distribution. Merck did, however, garner substantial goodwill among its stakeholders for its actions.

3. Social Policies on Retirement

Some countries around the world are facing severe workforce shortages associated with their aging populations. The percentage of persons age 65 or older exceeds 20 percent in Japan, Italy, and Germany—and will reach 20 percent in 2018 in France. In 2036, the percentage of persons age 65 or older will reach 20 percent in the United States and China. Unlike the United States, Japan is reluctant to rely on large-scale immigration to bolster its workforce. Instead, Japan provides incentives for its elderly to work until ages 65 to 75. Western European countries are doing the opposite, providing incentives for its elderly to retire at ages 55 to 60. The International Labor organization says 71 percent of Japanese men ages 60 to 64 work, compared to 57 percent of American men and just 17 percent of French men in the same age group.

Sachiko Ichioka, a typical 67-year-old man in Japan, says, “I want to work as long as I’m healthy. The extra money means I can go on trips, and I’m not a burden on my children.” Better diet and health care have raised Japan’s life expectancy now to 82, the highest in the world. Japanese women are having, on average, only 1.28 children compared to 2.04 in the United States. Keeping the elderly at work, coupled with reversing the old-fashioned trend of keeping women at home, are Japan’s two key remedies for sustaining its workforce in factories and busi­nesses. This prescription for dealing with problems associated with an aging society should be considered by many countries around the world. The Japanese government is phasing in a shift from age 60 to age 65 as the date when a person may begin receiving a pension, and premiums paid by Japanese employees are rising while payouts are falling. Unlike the United States, Japan has no law against discrimination based on age.

Worker productivity increases in Japan are not able to offset declines in number of workers, thus resulting in a decline in overall economic production. Like many countries, Japan does not view immigration as a good way to solve this problem. Japan’s shrinking workforce has become such a concern that the government just recently allowed an unspecified number of Indonesian and Filipino nurses and caregivers to work in Japan for two years. The number of working-age Japanese—those between ages 15 and 64—is projected to shrink to 70 million by 2030. Using foreign workers is known as gaikokujin roudousha in Japanese. Many Filipinos have recently been hired now to work in agriculture and factories throughout Japan.

Forbes best companies globally in regard to being socially responsible are listed in Table 10-2. Former CEO Bill Gates, of the number-one ranked firm Microsoft, established the well-known Bill and Melinda Gates Foundation, which sets a high standard for any person or company.

Source: David Fred, David Forest (2016), Strategic Management: A Competitive Advantage Approach, Concepts and Cases, Pearson (16th Edition).