Government regulation and public awareness are external forces that have increased the social responsibility of business. But business decisions are made within the company. Two contrasting philosophies, or models, define the range of management attitudes toward social responsibility; the economic and the socioeconomic model.
According to the traditional concept of business, a firm exists to produce quality goods and services, earn a reasonable profit and provide jobs. In line with this concept, the economic model of social responsibility holds that society will benefit more when business is left alone to produce and market profitable products that society needs. To the manager who adopts this traditional attitude, social responsibility is someone else’s job. After all, stockholders invest in a corporation to earn a return on their investment, not because the firm is socially responsible and the firm is legally obligated to act in the economic interest of its stockholders.
In contrast, some managers believe they have the responsibility not only to stockholders, but also to customers, employees, suppliers, and the general public. This broader view is referred to as the socioeconomic model of social responsibility. It places emphasis not only on profits but also on the impact of business decisions on society. Recently, increasing numbers of managers and firms have adopted the socioeconomic model and they have done so for at least three reasons. First, a business is dominated by the corporate form of ownership and the corporation is a creation of society. Second, many firms are beginning to take pride in their social responsibility records. Third, many business people believe it is in their best interest to take the initiative in this area, prior to their competitors.
The merits of the economic and the socioeconomic models have been debated for years by business owners, managers, customers, and government officials. Each side seems to have four major arguments to reinforce its viewpoint. Proponents of the socioeconomic model maintain that a business must be more than simply seek profits to support their position and they offer that businesses cannot ignore social issues because a business is a part of our society. Moreover, a business has the technical, financial, and managerial resources that are needed to tackle today’s complex social issues. Additionally, by helping resolve social issues, business can create a more stable environment for long-term profitability. Finally, proponents of socially responsible decision making practices argue that these types of tactics can prevent increased government intervention, which would force businesses to do what they fail to do voluntarily. All these arguments are based on the assumption that a business has a responsibility not only to stockholders but also to customers, employees, suppliers and the general public.
Opponents of the socioeconomic model argue that a business should do what it does best; earn a profit by manufacturing and marketing products that people want. Those who support their position argue that business managers are primarily responsible to stockholders, so management must be concerned with providing a return on owners’ investment. Furthermore, corporate time, money and talent should be used to maximize profits, not to solve society’s problems. Also, social problems affect society in general, so individual businesses should not be expected to sole these problems. In addition, social issues are the responsibility of government officials who are elected for that purpose and who are accountable to the voters for their decision. These arguments are obviously based on the assumption that the primary objective of business is to earn profits, whereas government and social institutions should deal with social problems.