BMOM5203 Organization And Business Management

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ASSIGNMENT

NG KIM WANG (720228015993)

OPEN UNIVERSITY MALAYSIA

BMOM5203 Organization And Business Management Question 1

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What are the arguments for and against the concept of corporate social responsibility? Where do you stand, and why? Give your opinions, specifically, with respect to the case above.

According to Carroll and Buchholtz, corporate social responsibility can be defined as economic, legal, ethical and discretionary expectations that society has of organization at a given point in time. The corporate social responsibility means that organizations have moral, ethical and philanthropic responsibilities to earn a fair return for investors and at the same time comply with law.

Carroll and Buchholtzs four-part definition of CSR expressed the different aspect of social responsibilities.

Economic responsibilities This can be understand as the responsibility of an organization to produce a good or services that society needed and at the same maximize profit of its investor/owner.

Legal responsibilities All businesses are expected to comply with law and regulations set by relevant authorities while trying to maximize their profit. Violated law may cause penalty imposed to an organization and even bring negative impact to its reputation.

Ethical responsibilities The ethical responsibilities defined social expectation of organization conducting matters which sometimes not rule by law in a fair way.

Discretionary responsibilities It is a purely voluntary, not because of mandated by law or ethic, an organization make social contributions that did not expect any payback.

BMOM5203 Organization And Business Management Some example of CSR:

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Community development Donations to community groups and charitable bodies. Sponsoring public health, sporting and recreational projects. Funding scholarship program or activities.

Human resource Health and safety of workplaces. Industrial relation. Employee assistance, remuneration and benefits.

Environment contribution Environmental education programs, awards and studies. General environmental considerations and statements.

Sources: Belkaoui and Karpik, 1989; Guthrie and Parker, 1989; Gray et al, 1995a, 1995b, 2001; Hackston and Milne, 1996; Imam, 2000; Newson and Deegan, 2002; Hamid, 2004)

Corporate social responsibility is actively being discussed among economists, and the most contrast views were on the arguments for and against CSR.

Argument for CSR

Corporates create social problems The major argument is corporates create and continue create social problems, and therefore is their responsibility to address social problems. For example, some

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manufacturer produced toxic waste during manufacturing contributed environment pollutions, thats why public will holds them accountable. Long run self-interest & profit Corporate that practice and actively engage in social responsibility tends to have better profit in long run compared with those doesnt. If corporates respond to communitys needs they will have a better environment to conduct their business. They will be having advantage in recruiting quality employee. Social problems such as crime will be reduced thus less money need to spend on protect property. All these cut down the operation cost in future. For instance, corporates who pay reasonable wages that meet industry standard will have advantage in recruiting labor. When labors got the wages that enough to support their living, crime rate will be reduced. Public image Corporates enhance their public image by responding to social responsibilities. As a result of positive public image, corporate gained more customers and better employees. For instance, auto maker who responded to consumer demand in reducing energy consumption and protecting environment will attract more customers. Less government regulations When corporates operate with socially responsible behavior, they will reduce the chances of increased governmental regulation. Government regulation adds cost to the business and restricts the flexibility of decision making. For instance, if corporate ignored the requirement of social in reducing environment pollutions, it will lead to a new law enforced by government which to meet the social demand of protecting living environment. The consequences of this will be corporate spend more cost finding solutions adhere to new law to reduce pollutions in their manufacturing. Corporate has resources

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Social expect large corporates who have resources (financial capital, technical expert and management talent) are able to handle social problems. Social can leverage on their strength such as innovative ability and high productivity in solving certain social problems. For example, an advertising company can produce a very innovative advertisement to draw public attention to promote certain campaign, e.g. environmental awareness campaign. Prevent is better than cure Handling social problems are like treating illness, taking precaution to prevent is always better than cure it when it happened. Business should recognize and act on social problems before they become more serious and costly to correct them. For example a business that contributed to environment pollutions choose not to deal with the problem now will have higher cost in saving the environment in future when issues become serious and difficult to tackle.

Argument against CSR

Violation of profit maximization Addressing social issues are costly and eaten into business profit, and this has violated the main responsibility of a business to maximize profit for its shareholder. This view was support by many economists, one of them Milton Friedman explained that the primary responsibility of business is to make a profit for its owner, while conforming to the law. Corporates should focus on earning maximum profit and leave the social issues to others.

Cost of social responsibility As mentioned above, involvement of social responsibility activities need cost. Corporation who pay the cost will either absorb the cost or transfer a small portion of

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the cost to its customer, to keep the margin of their profit. Unless the activities itself can pay their own way which is a very little case. Lack of skills solving social problems Business peoples strength by nature is well trained in finance, marketing and operation management, so they might lack of skills in dealing with complex social problems. If we expect someone to tackle social problems, why choose a group which is not equip with the right skills and ability. It should leave the issues to others who are fit to the job such as government or other organizations. Dilution of business purpose Business primary purpose is focusing on economic productivity which would benefit business itself and society. When corporate involved in social responsibility it might distract their focus in business, productivity may drop, and market share may reduce. It is in fact that in the end corporation may accomplish poorly its economic and social role, which society will be suffer as well. Business has too much power Another argument is that the businesses already have enough power in influencing the society; you can see their influence in many places such as school, government, at home and the market place. If society is purely rely on business to handle social problems they may giving business more power and increase their influences, which may end up bring bad influences to the society.

Conclusion

My personal opinion, corporates who operate in social responsible way would gain competitive advantages compared with those who dont. This is simply because the demanding of corporate to involve in social responsibility increased during the last few years,

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in both develop and under develop countries. Corporate who conduct business towards this direction would find it gradually gain customer and public favor. Corporate who choose not to enter into social responsibility arena would gradually sink into customer and public disfavor.

Cristina gomezs survey results further support the view. She is against Dr. Karnani view that corporate should treat maximizing profit as top priority, and then she conducted a survey to observe publics view on the topic. According to her survey result, people do care about how corporate dealing with social responsibility. 93% of respondents would buy a product from company that trying to increase community likelihood if all other factors are equal. 91% of respondents care about companys reputation for being involved in social responsibility. When ask how often respondent will buy product that produced from companies show interest in community, 27% said they will always buy, 64% will consider because not sure what actually company do in respond to social responsibility. 9% will never think of that. Another survey revealed that 86% of respondents will boycott companies whose actions werent in line with respondents philosophies.

Now, we use Mattel VS MGA legal case to further support the view by looking at bad consequences of not being social responsible.

Legal actions being taken due to violation of laws Both companies were being fined for million dollars due to misconduct in trade secret and intellectual property, and this definitely reduce their profit. In addition, million dollars was using to file the suit case also further reduce the profile. The case seems going to continue for years and this will continues eaten the company profit. That

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money spent could have spent in social welfare for a better living environment for community. Public image spoiled and customer may leave them Put a side who is wrong or right in the suit case, it has up to the certain extend affect the company image in a negative way. Public would think that the suit case is not necessary and the money spent in the drama could have better use in improving their living environment. This would lead to disfavor of the company and buy product from others, which end both companies lose in the market place. Difficult in recruiting employee and high turnover of employee When a company image is not on the positive side, is difficult to recruit staff and some may leave the company. In long run, it increases the operating cost. New regulation/guideline set by the relevant authorities A new regulation and guideline may have to set in order to cease the Mattel and MGA fighting, to address loop hole in controlling intellectual property and trade secret. As a result, companies tend to spend more money to comply with this new rule.

There is no question that the publics expectation on corporate social responsibility is greater than ever before, thus companies who totally disregard social issues and problems will be suffer in the future.

REFERENCE

Carroll, A.B., and A.K. Buchholtz. Business and Society: Ethics and Stakeholder Management. 5th ed. Australia: Thomson South-Western, 2003.

BMOM5203 Organization And Business Management Cristina a. Gomez, 22 September 2010,

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http://apersonalinvestment.wordpress.com/2010/09/22/all-about-profits-means-all-aboutpeople/

Friedman Milton, Does Business Have a Social Responsibility, Bank Administration, April 1971, page 13-14.

BMOM5203 Organization And Business Management Question 2

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MGA and Mattel are facing a dilemma over their newest product in the market. This moral and ethical issue is weighing heavily on their mind. Discuss an effective process that is applicable to ethical decision making. In your opinion, would using this process be of benefit to MGA and Mattel? Explain.

Like many other corporates, Mattel and MGA are facing difficult ethical dilemma, such as whether Mattel should continue manufacture their toys in china which they may not have the full control over product quality, whether MGA should changing image of their Bratz dolls which were claimed being over sexualized.

The subject of business ethic is complex and making ethical decision is always not easy. L T. Hosmer in his book The Ethics of Management has suggested a process which believes helps in making ethical decision. Lets discuss the process and see how it helps Mattel and MGA making the appropriate ethical decision.

There are 5 steps in the process.

1. Understand moral standard There are many moral system and standard out there, and these concepts underlie the ethical decision in business. Utilitarianism This can understand as a system that the action taken will result greatest good for the greatest number of people. For example, during economy downturn, cutting salary from the executive or management level of staff will help a company

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survive in the difficult time. This action will help all employees secured their job if company can still sustain. Egoism Unlike utilitarianism, egoism is a system defining acceptable behavior that maximizes the greatest interest for oneself. For example, when someone selling a new product or services which are not in the market, they will make a lot of money simply because there is no competition, this is an acceptable behavior by pursuing ones own interest. Universalism The universalism system says that all peoples should uphold certain values such as honesty that society needs to function. For example, murder is considered wrong according to the universal principle. Relativism Relativism is a contrast view of universalism where the judgment of right or wrong is not follow the universal principle instead is a personal view of someone. For example, murder is wrong according to most people, but murder during war someone may view it is right to protect their homeland. Virtual ethics According to virtual ethics theory, a decision should be made based on someones moral judgment instead of just follow the rules. For example, if someone telling lie to protect another being hurt is not consider wrong, which against the rules that saying telling lie is wrong.

By understand these moral standards, Mattel and MGA can choose the concept which is align with their corporate culture and business behavior.

BMOM5203 Organization And Business Management 2. Recognize all moral impacts

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This is referring to the process of recognizing the impact of alternatives in ethical problems. A business must list down the impact of alternatives (advantages and disadvantages) in order to make an appropriate decision. Mattel For example, Mattel must know the advantages and disadvantages of manufacture their toys in china to help them making a decision at later stage. Advantage is able to bring down the cost and offer lower price to customer but disadvantage would be losing control over the product quality which has been proven in its 2007 recall where certain partner doesnt comply with the rules and guideline set by them. MGA For example, MGA must know what is the pros and cons of changing Bratz dolls image which is over-sexualized, what would be the positive and negative views of changing image to follow publics opinion. Positive side would be meeting parents expectation not to deliver wrong message to their children but on the negative side their toys may lose its trendy and edgy characteristic that better selling over Mattels Barbie dolls, and also losing its originality which has compromised due to market demand.

3. Identify and define ethical problem Before even making decision, first must identify and define the ethical problem. There are few things to consider to identify and fully defined the ethical issue. Does a dilemma or problem exist?

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For example, one of the Mattels ethical dilemmas is whether they should continue production in china which on positive side is offer customer lower price due to lower wages in china, the downside is product safety maybe compromise if they losing control over their china partners. If the dilemma is an ethical issue? Refer to above given example, Mattel can identified the issue is an ethical problem because it against the principle that business should always offer goods that of best interest of public, it violated if product safety cannot be guaranteed. It is a single issue or combination of more than one? Take Mattel as an example, other than consider if they can control the product safety of being produce in China, they may need to consider if the decision has other ethical issues such as employed under age worker, not paying reasonable wages and etc.

When businesses truly understand and defined the scope of problem then only they are able make a wise ethical decision.

4. Consider the consequences After knowing the problem, the next step is to consider its consequence from economic and legal perspective. Consider the economic outcome Cost associated with unethical behavior can be categorized to 3 levels. Level 1 cost which is less damaging cost but get more attention from executive such as fine and penalties from the local authorities.

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Level 2 cost is medium level in term of cost damaging and drawing the executive attention. They are like administrative cost, audit cost, corrective action cost. Level 3 has the highest level in cost damaging but getting less attention from the executive, such as loss of reputation, lost employee morale, employee turnover.

Business must weigh the benefit of its decision against the damage the decision would bring. For example, Mattel should compare how much cost they can save if production in china compared with how much damage they have to bare if product quality and safety are being compromised. Remember those recall of thousands or million toys in year 2007 and weight against how much they have save in production cost.

Consider the legal requirements Business is expected to obey laws while trying to maximize its profit. The consequences of violated law will be fines and penalties being imposed. Indirect consequences will be damage the company image and reputation. Thus is worth for business to think about legal requirements and ensure the ethical decisions made are comply with law.

5. Proposing a solution Last step is to propose a convincing solution which is ethical and will not harm the company profit. There are few golden rules when proposing an ethical solutions. All decisions made must reflect concern of interests of all stakeholders. Ethical values and principles are always take precedence over non-ethical one.

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It is ethically proper to violate an ethical principle which is necessary to advance another true ethical principle. If according to the decision makers conscience will produce the greater good in the long run.

And there are few suggestions/tips that may help decide what will be the right decision.

Conduct a brainstorming session to find out all possible solutions. Gather feedback and input from client in the decision making process as they will be the one judge if is a right or wrong decision.

Getting consultation or advices from peer or supervisor which might have experience in dealing the problem or think from another perspective.

Conclusion

Ethical decision making is tough, no one can guarantee a decision made is right or wrong, it can only be observed in the future. However, utilize the above said process will increase the chances of making the correct decision.

REFERENCE

Bateman/Snell, Management Leading & Collaborating in a Competitive World, 9th ed, 2011.

Josephson Institute of Ethics, Making Ethical Decision: Model, last update 2009, http://blink.ucsd.edu/finance/accountability/ethics/model.html

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L T. Hosmer, The Ethics of Management, 4th ed. New York: McGraw-Hill/Irwin, 2003, p. 32.