Business Ethics and Corporate Governance
Strategy and society- M Porter and Mark Kramer
Differences between views of Friedman and Porter & Kramer on social responsibility
Porter & Kramer
Social responsibility of a company should be
viewed as an integral part of the business
strategy.
Integration of social responsibility and
business activities can create a competitive
value proposition for a company.
Successful companies need a healthy society,
healthcare, education and equal opportunity to
create a productive workforce and societies
without companies cannot survive.
CSR activities show their effects on the profits
of the company.
Society and company go hand in hand or are
interdependent. Only one cannot survive
Approaches to CSR are so fragmented and so
disconnected from business and strategy as to
obscure many of the greatest opportunities for
companies to benefit society.
CSR can be much more than a cost, a
constraint, or a charitable deed it can be a
source of opportunity, innovation, and
competitive advantage.
When looked at strategically, corporate social
responsibility can become a source of
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Friedman
Company has no moral responsibilities as
company is an artificial person. The
responsibility is of the company executives.
The only motive that a company has is to make
profits.
Company in no way liable to society instead it
is only to its stakeholders and employees.
He calls company executives as agents of the
company and their responsibilities are the
desires of company stakeholders.
Freidman thinks executive of a company
should not use company funds for the benefit
of the society as this will lead to decrease in
wages of employees.
He says it is the duty of government to help the
society.
In an ideal free market resting on private
property, no individual can coerce any other,
all cooperation is voluntary, all parties to such
cooperation benefit or they need not
participate.
There are not values, no "social"
responsibilities in any sense other than the
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tremendous social progress, as the business shared values and responsibilities of
applies its considerable resources, expertise, individuals.
and insights to activities that benefit society.
Society is a collection of individuals and of the
various groups they voluntarily form.

Strategic corporate social responsibility

Strategic CSR can be called as “contemporary organization must view itself as belonging to an
ecosystem, which is populated by the local community the organization exists and does business
within; its customers; its suppliers; employees of the organization; economic and political
influences that impact on the organization etc.”.
If we look at CSR through the lens of complexity and take an ecosystem perspective, then CSR
must surely be about reciprocal relationships that deliver social value throughout the ecosystem.
It must be about a mutually beneficial and mutually reinforcing strategic relationship between a
company and the society that it interacts with and impacts on i.e. the local community; or parts
of the globe where the company transacts business.
Whilst organizations are demonstrating good citizenship by donating money to support local or
worthy causes, this is a reactionary or defensive stance (akin to the Compliant or Opportunistic
organization). If companies simply produce glossy, thick CSR reports or glibly talk about how
they are being environmentally responsible, then this is merely reactionary.
The organization needs to establish its CSR footprint and understand the impact it has on the
environment and society from every angle and in every step in the value chain. The intelligently
sustainable organization moves beyond offering marketing hype and works out how it can create
a value proposition that includes having a social impact of benefit to itself and society.
Without specifically talking about an ecosystem model, Porter & Kramer see CSR as an
opportunity rather than a cost because there are points of intersection between a company and
society. If these intersection points are identified, then the company can work out a value
proposition that is unique for its customers.

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Inside-out linkages (proposed by Michael Porter & Mark Kramer) refer to the impact a company
has on society through the normal course of business. By working through each step of the value
chain, the company can work out positive and negative consequences of its actions e.g. hiring
practices; waste disposal. This includes identifying and acknowledging evolving or future social
effects. Asbestos was considered safe in the early 20th century, but we now know the horrifying
impact of asbestos on humans and the subsequent legal actions taken against companies.
Sustainable organizations will need to know what is coming over the horizon in terms of the
social impact its products may have in the future.
Outside-in linkages refer to external social conditions that may affect an organization –
availability of talent; intellectual property protection; rule of law etc. The company needs to
work out what it can and can’t influence. From here, it must then choose which social issues to
address. It can’t take on the full buffet but it can choose to offer a select gourmet menu. Where a
social issue intersects with its business, then this is perhaps a priority social issue where shared
value can be created. Toyota is probably a good example – the Prius, the increasingly popular
hybrid car – is an intersection between Toyota’s business and environmental benefits (less
emissions; happy customers; cleaner roads, air etc.).
Similarly, Mexican construction company, Urbis, builds houses for disadvantaged buyers using
different payment options such as flexible mortgages made through payroll deductions. The
social impact is clearly around helping the disadvantaged afford decent homes whilst, at the
same time, Urbis as a business benefits.
Adding a social dimension to the value proposition and understanding inside-out and outside-in
linkages is strategic CSR, which results in the contemporary organization being able to impact
positively on society, rather than merely dishing up PR and marketing hype.
Milton Friedman

I completely disagree with their opinion as they are completely ignoring the futuristic approach.
I do not agree that the business managers who act against the economic interests of the firm to
achieve some social objective such as lowering of unemployment are, in effect, imposing taxes
on the owners, and/or/ employees in order to benefit society because it is the social
responsibility of the organization to serve the society in which it is functioning.
The business managers have direct responsibilities and also towards his employees, in terms of
fulfilling their specific desires while adhering to the basic rules of the society. Michel Friedman
has carefully noted this, but at the same time argues that it is not the manager’s sole
responsibility. Also it is not clear as to whether it is the moral responsibility or the social
responsibility of the manager.
Friedman makes an interesting claim that social responsibility necessarily comes at the expense
of the interests of employers, or shareholders. These Business Enterprises have documented trust
among the stakeholders. Therefore it is not necessary to impose the tax on shareholders or
employees because if the company benefits the society then there would be adequate returns in

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terms of goodwill and profit to the company and which would increase returns to shareholders
and employees.
I think spending on social responsibilities is not a cost rather it is an investment which will lead
to long term benefits for the company. Companies earn profits from the society. In a way they
are taking everything from the society so it is their duty to give something back to society. There
are numerous examples where companies have benefitted with their well-coordinated efforts in
CSR. If the “tax” word is replaced by “cost” then also it will not make any difference as social
responsibility of company should be taken as an investment not as a cost. It might seem as a cost
for a short term but long term benefits attached should not be overlooked by a company. CSR
creates goodwill for the company and changes the perception of the people about the company.
It creates a positive image in the eyes of the people and people tend to buy products from such
companies as people are getting environment conscious these days.
Coming to the second question, I feel companies do have social responsibility beyond law.
Every organization you and I know claims to be a good corporate citizen 'cause they gave away
some money for charity. It is often an attempt to absolve them from any responsibility to really
participate and yet be seen as a kindhearted organization. Donations allow a beautiful way to be
associated on the very surface. More often than not, these donations are motivated by misguided
directions from the PR team or the CEO's desire to make some press.
Government should not make laws to make it legally binding on the company to donate money
for the charity purposes. Friedman mentioned that in a free society one cannot force other to do
something against his will.
I still vividly remember a full-page national ad campaign, worth a few crores of Rupees, by a
large automobile group, announcing a donation of 20 lac Rupees and 5 cars towards Army
Relief Fund after Kargil - I thought it would have made more sense the other way round. More
contribution, less noise.
Donations typically go in the way of 'crisis of the moment' as most it serves the purpose for
visibility greedy corporates and also helps rid guilt/ need to do anything else.
Not for profit organizations too are constantly clamoring for funds - primary means for them to
sustain their ground efforts. 'Competition' among them to outdo each-other is intense. Funds on
the other hand are finite so, for example, what was meant for the girl child as a cause now goes
to Tsunami - not additional funds. The process is often random and driven by herd mentality,
with little concern for:
1. Need
2. Impact
3. Sustainability
Ironically, ever so often even these funds/ donations don't reach the needy or even when they do,
often they reach so late that the purpose is lost.

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A surface approach to CSR is not the solution to whatever purposes it was directed towards.
This approach is flawed - creates imbalances and potential dependencies rather than enablement.
What is needed instead is a thought through approach. This can be done by adopting a longer
term approach; focusing on areas where an intervention by the group can make an impact; need
assessment; relevant partnerships and a focus on setting objectives and mile-stones. Great CSR,
I have always believed, has nothing to do with money, but with taking ownership.
CSR should be voluntarily done not mandatorily. Let companies decide what they want to do
with their surplus money. Any such law will definitely affect the business environment of a
country and business activities in a country are equally important for the benefit of the society.

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