The Socioeconomic View vs. The Classical View

Difference Between the Socioeconomic View and the Classical View

The socioeconomic view and the classical view are two approaches that shape and influence the way managers (especially in large organizations) prioritize and do things.

The socioeconomic view is “the view that management’s social responsibility goes beyond making profits to include protecting and improving society’s welfare” (Robbins, S et al. 2006, p.161). According to Carroll (1991), the four fundamentals to corporate social responsibilities - economic, legal, ethical, and philanthropic - can be linked to corporate social processes such as environmental assessment, stakeholder management, and issues management (Wood, 1991).

Results of studies carried out have shown a positive relationship between corporate social responsibility and corporate financial performance (Cochran & Wood 1984; Turban & Greening 1996; Waddock & Graves 1997; Berman, S.L et al. 1999). Hence, corporate social responsibility incorporates both policy and practice. (William & Gail, 2007, pg 66): with corporate social outcomes such as social impacts, programs and policies.

Being socially responsible is not only the right thing to do, it also aids corporations that are socially responsible to create a favorable public image, improve share price in the long run, and have more secured long-run profits. Simon Zedek (2001) further explains that when corporations have a greater sense of corporate social responsibility, they will take greater account on their actions for repercussions they may cause – the impact on environmental and social issues (Robbins, S et al. 2006). Moreover, it would be in a corporation’s best interest to pursue corporate social responsibility as public opinion now supports businesses that do so, and those who do so can expect less government regulation. Social responsibility also includes the balance of responsibility and power; the case of Enron (Managing 401(k) Plans 2006 p.9; Goldmann, Peter 2006) would be a good example of a corporation that failed to implement corporate social responsibility.

The classical view, on the other hand “says that management’s only social responsibility is to maximize profits” (Robbins, S et al. 2006, p.161). Milton Friedman (1970 p.6) maintains that “there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”

In addition, Friedman (1962, 1970) argued that managers’ main responsibility is to operate the organization in the interest of the shareholders by increasing financial returns. If socially responsible actions add to the cost of a business, it would hurt the return on profits. Robbins, S et al. (2006) also mention that those opposed to social responsibility fear that pursue of social goals may dilute economic productivity, and of the costs incurred as many socially responsible actions do not cover their costs.

References:

• Berman, S L et al., 1999, ‘Does stakeholder orientation matter? The relationship between stakeholder management models and firm financial performance’, Academy of Management Journal, October, pp. 488-506

• Cochran, P & Wood, R A, 1984, ‘Corporate social responsibility and financial performance’, Academy of Management Journal, March, pp. 42-56

• Friedman, M, 1962, Capitalism and freedom, University of Chicago Press, Chicago

• Carroll, A. 1991, ‘The pyramid of corporate social responsibility: toward the moral management of organizational stakeholders’, Business Horizons, Issue 34, pp. 39-48

• Friedman, M, 1970, ‘The social responsibility of business is to increase profits’, New York Times Magazine, 13 September 1970, pp. 33

• Goldmann, P, 2006, Internal Auditor Vol. 63, Issue 6, December, pp. 96-96

• Managing 401(k) Plans, 2006, Vol. 2006, Issue 12, December, pp. 9-9

• Robbins, S, Bergman, R, Stagg, I & Coulter M, 2006, Management, 4th edn, Pearson Prentice Hall, Australia

• Turban, T B & Greening, D W, 1996, ‘Corporate social performance and organizational attractiveness to prospective employees’, Academy of Management Journal, June, pp, 658-672

• Wood, D, 1991, ‘Corporate social performance revisted’, Academy of Management Review, Issue 16, Vol. 4, pp. 691-178

• Zadek, S, 2001, The civil corporation: The new economy of corporate citizenship, Earthscan, London.

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Judith Barton
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lucia anna
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