Role of Business According to the Social Responsibility Perspective

There are several business concepts of Corporate Social Responsibility (CSR), Baron reflects on two.  The first is Milton Friedman’s Profit Maximization.  Friedman’s views are based on the basic economic principle that the role of business within society is to “generate well-being through economic efficiencies” and efficiencies are created when markets are competitive.  Building on his views of the role of business, Friedman’s formation of CSR is “to conduct business in accordance with the owner’s desires, which generally will be to make as much money as possible while conforming to the basic rules of society.”  Friedman is very clear in asserting that profit maximization is the priority and that calls or attempts to broaden the objectives of businesses to other than profit maximization “will weaken the free enterprise system and the well-being that flows from it.” (Baron, 2010, P 622)

In contrast with Friedman’s perspective is the “Statement on Corporate Responsibility”, issued in 1981 by a task force of the Business Roundtable.  The Roundtable was created to “examine public issues that affect the economy and develop positions which seek to reflect sound economic and social principles.” The statement released reflects the views of a stakeholder and states that business is “to serve the public interest as well as private profit”.  The belief is that by giving “consideration to balancing the legitimate claims of all its constituents, a corporation will best serve the interest of the shareholder”. The Roundtable identifies seven stakeholders: customers, employees, financiers, suppliers, communities, society at large, and shareholders.  The Roundtable wants all sides to be heard but does not want stakeholders making managerial decisions. While the Roundtable wants to consider all stakeholder concerns, it also understands that it is impossible to “assure that all will be satisfied because of the potential for competing agendas.  (Baron, 2010, P 629)

In Friedman’s view, the role of government is to “impose taxes, determine expenditures, interpret law and mediate disputes.”  When “social cost” creates market imperfections, then the role of government is to identify and protect entitlements. Government may use “market-like mechanisms”, such as cap and trade systems, to counter high transaction cost, but those types of functions should be reserved for government and held in check by a system of checks and balances. For Friedman, requests for increased scope of CSR means that the “expenditure in question” was not agreed upon by the majority and so not enacted by legislation.  In simpler terms, calls for expanded CSR, is an undemocratic process. (Baron, 2010, P 623)

The role of the individual in CSR is a simple one and is at the roots of CSR. Because a corporation is comprised of individuals, those individuals create the socially responsible culture. Both individual and corporate social responsibility is voluntary; it is about going above and beyond what is mandated by legal responsibility.  Therefore, the individual must not only behave in ethically and socially responsible ways, but, as a stakeholder, he must also advocate for corporate social responsibility.

About the Author

Jerry Landers is the Vice President of Business Development for Aspire Indiana. While the beliefs and opinions expressed in this blog are solely those of Mr. Landers you can learn more about community mental health and how it intersects with business and media at http://www.facebook.com/AspireIndiana

References

Baron, D. (2010), Business and Its Environment (6th ed). Upper Saddle River, NJ: Prentice Hall. P. 619-641

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Corporate Accountability and Responsibility

The Enron scandal became public in 2001 and was followed by a long list of corporations that conducted unethical and illegal activities that negatively impacted the lives of millions of shareholders.  Kenneth Lay, founder of Enron, developed a management team that used accounting loopholes, special purpose entities, and poor financial practices, in order to hide billions of dollars in debt. Lay and his team, then misled Enron’s board of directors and audit committee on those at-risk accounting practices. As a result, many executives at Enron were indicted and later sentenced to prison. As a consequence of the scandal, in 2002, the Sarbanes-Oxley Act was passed by legislators, which increased consequences for attempting to defraud shareholders. The act also changed the relationship between auditing companies and their clients, requiring the auditing companies to remain unbiased.

Six years after Sarbanes-Oxley was passed, Lehman Brothers filed for bankruptcy. In 2008, the Lehman’s bankruptcy filing was the largest in history even larger than WorldCom and Enron. At the time of its collapse, Lehman was the fourth-largest U.S. investment bank. The fact that Sarbanes-Oxley didn’t keep Lehman out of trouble creates questions about the value of these types of legislation. So if Sarbanes-Oxley is ineffective, what type of plan will bring about corporate responsibility and accountability to all shareholders?

I believe that the intent of Sarbanes-Oxley was to increase transparency, which would lead to accountability.  While I support the philosophy, the first step in accountability is not transparency.  The first step in becoming accountable….is wanting to be accountable.  This is a statement about corporate culture and starts at the top of the agency. The development of a corporate compliance officer that does not report to the administration, but independently reports to the board of directors, is my second step recommendation. The corporate compliance officer should not be a third party accounting firm, but, instead, should be a part of the corporate executive team with the responsibility of guiding and advising the executive staff. They should be completely integrated, yet report to the board and not the CEO. Today, many of the executive staff managing publicly traded companies are incentivized to focus on the short term gains that temporarily improve stock price but are not necessarily good for the company in the long run.  It is for this reason I would argue for my third step and recommend delayed bonus and incentive payments that are tied to long-term trends and not point-in-time performance.  Finally, for my fourth step, I would recommend the adoption of International Accounting Standards, instead of the current US accounting practices.  The international practice incorporates a “principle-based” approach that helps address some of the limitations that we experience with the US system.

In conclusion, I would like to suggest that expanding legislation like Sarbanes-Oxley only increases the expense and complexity of corporate operations while producing questionable benefit.    True improvement in Corporate Accountability and Responsibility will only happen when the corporate culture changes.  But, by creating an integrated corporate compliance office, changing executive pay incentives, and adopting better accounting practices, we will help create a level of transparency and accountability that should foster the right environment for corporate culture to change.

About the Author

Jerry Landers is the Vice President of Business Development for Aspire Indiana. While the beliefs and opinions expressed in this blog are solely those of Mr. Landers you can learn more about community mental health and how it intersects with business and media at http://www.facebook.com/AspireIndiana

References

Cone, E. (2006), Compliance: Is Sarbanes-Oxley Working?, Retrieved from http://www.cioinsight.com/c/a/Trends/Compliance-Is-SarbanesOxley-Working/

Benner, K. (2010), Is Sarbanes-Oxley a Failure, Retrieved from http://money.cnn.com/2010/03/23/news/economy/sarbanes_oxley.fortune/index.htm

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CEO Compensation

According to the Summary of Legislation Proposed, Enacted and under Discussion, prepared by the institute for Policy Studies, disproportionate salaries for executives first became a concern in the early 1980s, about the same time that deep cuts in the top marginal federal income tax rate took effect. Before the 1980’s, high top-bracket federal income tax rates of 91 percent on income over $400,000 was in effect until 1964. Following that a 70 percent tax on income over $200,000 was in effect until 1981.  These high income tax rates made high salaries a non-issue.   After all, corporate boards could offer million-dollar pay packages, but what would be the point? The bulk of any pay over the top income tax bracket would simply be taxed away.

Tax pressure on disproportionate salaries for executives has faded over the past quarter-century as the top marginal tax rate has decreased, currently at 35 percent. Today, compensation for top executives in the United States has now soared to over 400 times average worker compensation.

The incredible difference in pay has prompted a search for legislative initiatives seeking to address superfluous executive compensation. The passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (H.R. 3269), addressed the rights of shareholders to vote on executive compensation.  This legislation was developed to address excessive executive compensation that was scrutinized during the financial crisis of 2008 and 2009.  (Dodd, 2010)

The basic concept of economics relies upon prices being set by the market.  Compensation for executive staff should be no exception.  Publically traded companies that are affected by the Dodd-Frank legislation might see certain executives leave their firms or seek employment in the private sector where the Dodd Frank rules would not apply.  For example, Natural-Foods Grocer originally limited compensation for their top executives “to a multiple of the average of Whole Foods worker’s pay”. The cap, which covers salaries but not stock options, started at 8 time’s average pay, was raised to 14 times average pay in the early 1990s. As sales hit $5.6 billion and rivals tried to recruit Whole Foods managers, the board of directors raised the cap to 19 times average pay, or $607,800. According to Chief Executive John Mackey, the increase was needed “to help ensure the retention of our key leadership.” (Dvorak, 2007)

Another example of the failure of capped salary can be seen in the early salary structure of the ice cream company Ben and Jerry’s.  In the early 1980’s ben & Jerry’s had a policy that no employee could make more than five times what the lowest paid worker earned.  In 1986, this rule capped the CEO’s pay at $81,000.  This policy was eventually scrapped in 1994 when Ben Cohen, the “Ben” of Ben and Jerry’s, retired from the top position.  It proved difficult for the Vermont-based company to find an outside leader that would adhere to the unique policy set in place by the founders.  (The Cape Cod Critic, 2009)

It’s just my opinion but I believe that the market should dictate compensation.  If an individual is worth 400 times the average employee wage then they should be paid that much.  The problem isn’t in how much an individual is paid. The Problem is in determining the individual’s worth to the company.

About the Author

Jerry Landers is the Vice President of Business Development for Aspire Indiana. While the beliefs and opinions expressed in this blog are solely those of Mr. Landers you can learn more about community mental health and how it intersects with business and media at http://www.facebook.com/AspireIndiana

Reference

Congress (2012).  S. 3713–112th Congress: Dodd-Frank Wall Street Reform and Consumer Protection Technical Corrections Act of 2012. In http://www.GovTrack.us. Retrieved from http://www.gpo.gov/fdsys/pkg/BILLS-111hr4173enr/pdf/BILLS-111hr4173enr.pdf

Dvorak, P (2007), Limits on Executive Pay: Easy to Set, Hard to Keep, Retrieved from http://finance.yahoo.com/news/pf_article_102878.html

The Cape Cod Critic, (2009), Lessons From Ben and Jerry, Retrieved from, http://thecapecodcritic.blogspot.com/2009/01/lessons-from-ben-and-jerry.html

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Role and Constitutional Foundation of News Media

What role does the news media play in our political system, and what are its constitutional foundations? Under a democratic government with a free press, the news media plays a powerful role because it shapes our view into the political world. In fact, without mass media to inform us of what our government is doing, how would we know?

The First Amendment of the United States Constitution reads;

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.  

Madison first introduced the freedom of speech and press clause on June 8, 1789 during a speech to the House of Representatives, where he is quoted as saying, ”The people shall not be deprived or abridged of their right to speak, to write, or to publish their sentiments; and the freedom of the press, as one of the great bulwarks of liberty, shall be inviolable.” Our founding fathers, in agreement with Madison, amended the Constitution so that actions by the government could be scrutinized and so that the citizens could monitor the actions of its government without fear.  The ultimate goal was to create a system of transparency so that those in leadership could be held accountable.

In 1791,when the United States adopted the First Amendment, the term ‘press’ referred to our ability to publish books, newspapers, and handbills. With advancements in technology, the press has come to include radio, television, and the internet.  With the development of social media, desk-top publishing, and blogging, anyone can take on the role of amateur journalist and many have.  With so much information or misinformation flowing, we have become increasingly dependent on credible news media outlets.

Concerning the area of politics, I believe that the news media, and a free press, has one primary function.  That function is the opportunity to fulfill the role of watch-dog, meaning the news media has the ability to point out corruption by focusing the spotlight on those people in leadership that are not acting in an ethical manner. For example, I site the case of Near vs. Minnesota, 1931.  The Near vs. Minnesota case compared the rights of a free press against the state’s goal to fight “yellow journalism”.  In summary, Near published a newspaper that printed prejudiced stories, but also included stories that were true.  Between September and November 1927, Near included a series of stories that accused a number of city officials, including the Mayor, city attorney, and chief of police, of taking bribes. The county attorney sued. Near appealed up to the Supreme Court and won. While the ruling was a split decision, it did have the effect that the majority had predicted and allowed the press to act as a government watch-dog. “For example, in 1971, the Supreme Court used Near to rule that the federal government could not stop newspapers from printing an embarrassing report about the government’s involvement in the Vietnam War.” (eNotes, 2012)

In conclusion, the media has an important role in today’s politics. Just as our forefathers intended, the news media acts as a watch-dog.  At the same time, it is also true that bad media undermines our political system with misleading views twisted by bias. So now, those intended to be the watch-dogs need watching. One thing is for sure, because of our complex government, geographic distances, and busy lifestyles; we are dependent on news media to keep us informed.

About the Author

Jerry Landers is the Vice President of Business Development for Aspire Indiana. While the beliefs and opinions expressed in this blog are solely those of Mr. Landers you can learn more about community mental health and how it intersects with business and media at http://www.facebook.com/AspireIndiana

References:

Norris, P., & Odugbemi, S. (2008), The Ideal Roles of the News Media in the Public Sphere. Retrieved from http://www.comminit.com/?q=media-development/node/280203

FindLaw for Legal Professionals (2012), Freedom of Expression—Speech and Press Retrieved from http://caselaw.lp.findlaw.com/data/constitution/amendment01/06.html#1

Curl, W. (2008), The Role of Media in Politics, Retrieved from http://ezinearticles.com/?The-Role-of-Media-in-Politics&id=1174327

Geiger, M. (2010), The Role of the Media in Politics, Retrieved from http://voices.yahoo.com/the-role-media-politics-6002472.html?cat=9

eNotes (2012), Freedom of the Press, Retrieved from http://www.enotes.com/freedom-press-reference/freedom-press

eNotes (2012), Near v. Minnesota, Retrieved from http://www.enotes.com/near-v-minnesota-reference/near-v-minnesota-299501

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Media as a Business

How can the news be fair and unbiased when, in the United States, news and media organizations are owned by for-profit organizations that are motivated by profit? In 2009, the top 10 media companies combined generated $59.9 billion in gross revenues with Time Warner generating the largest percentage of that, totaling $46.48 billion. Other large media corporations include Fox Television, Walt Disney, CBS, Google media, Comcast, Omnicom, and Viacom. (Hasan, 2009)  Today, these news media brands compete within their own medium as well as across other mediums.  This drive for profits, that is generated by increased ratings, more website views, or selling more newspapers, creates an industrial conflict of interest.

Journalism, like all professions, has incorporated ethics into its professional ranks, and those standards are supposed to be enforced by the media industry itself, as well as by the professional associations that represent it. In reality, journalists have a lot of discretion in how they apply their own values when they report on specific stories. Baron explains that “most non-market issues are complex” and the ability to present them in a balanced and accurate manner that is fair “varies between media organizations”. (Baron, 2010, P 75)

As a result of the struggle with unbiased reporting, public confidence in news media has declined since the early 1980’s, with the public viewing the news media as “less professional, less accurate, less caring, less moral, and more inclined to cover up than correct mistakes”. According to a 1999 survey conducted by the American Society of News Editors (ASNE), “78 percent of the public believe that there is bias in the news media”. Baron speculates that media bias could arise from the demand-side of supply and demand. For example, individuals demand news as entertainment and probably have a demand for stories that are “consistent with their political or social viewpoints.” This provides an incentive for a news organization to bias stories in order to satisfy certain clientele. (Baron, 2004)

This issue of biased reporting also creates questions of corporate social responsibility. Doesn’t the news media have a greater level of social responsibility levied against it when compared to other organizations? After all, we are dependent on the media to inform us about public rights and wrongs. As you ponder the question of social responsibility, consider that other industries have championed social responsibility without jeopardizing their profit goals. For example, three of today’s most profitable corporations, Kohl’s, Starbucks, and the Vanguard Group, all have championed for corporate responsibility. (Kincaid, 2012)

About the Author

Jerry Landers is the Vice President of Business Development for Aspire Indiana. While the beliefs and opinions expressed in this blog are solely those of Mr. Landers you can learn more about community mental health and how it intersects with business and media at http://www.facebook.com/AspireIndiana

References

Baron, D. (2010), Business and Its Environment (6th ed). Upper Saddle River, NJ: Prentice Hall. P. 199-207

Baron, D (2004), Persistent Media Bias, Retrieved from http://www.wallis.rochester.edu/conference11/mediabias.pdf

Hasan, (2009), Top Ten Media Companies In The United States, Retrieved from http://www.dirjournal.com/business-journal/top-ten-media-companies-in-the-united-states/

Kincaid, M. (2012), Building Corporate Social Responsibility Through Servant Leadership, Retrieved from http://www.regent.edu/acad/global/publications/ijls/new/vol7iss2/IJLS_Vol7Iss2_Kincaid_pp151-171.pdf

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Basic Issues in Internet Privacy

            According to Baron, privacy issues associated with the internet range from the use of personal information provided to electronic business sites, to the use of Web bugs that record who visits personal Web pages (Baron, 2010, P 418). Web sites place “cookies”, which is a computer file, with a unique identification system, on a user’s computer. The “cookie” is initially beneficial in that it helps users log onto frequently visited sites, but can also be used to track activity without the user’s knowledge. Spyware and adware are the next version of tracking technologies. Adware programs are placed on a user’s computer and can track information, including each click a user makes while surfing the internet.  Spyware is a secret program that goes beyond adware and collects personal information such as passwords and credit card information. Today, “privacy on the internet is a technology race”, with those on both sides of the competition developing new strategies and technology to counter the other’s (Baron, 2010, P 418).

            Privacy advocates focus on the rights of the individuals over the benefits. Those advocates also propose that those rights need not be established by government, but are created by moral principle.  According to Baron, some privacy advocates argue that an individual’s privacy is protected by property rule.  This would imply that a person’s individual privacy should not be infringed without that person’s consent.  In terms of internet privacy, Baron defines three basic principles; the right to know, choice, and to be free from arbitrary treatment. This assumption, that privacy is a right, places duties and responsibility on companies that interface with their customers via the internet (Baron, 2010, P 418).

In the United States, internet privacy has primarily been accomplished by self-regulation, as the internet companies have developed their own privacy protocols and created independent organizations designed to certify those policies (Baron, 2010, P 418).  Although there has been no federal legislation establishing basic internet privacy rights, a variety of bills have been introduced in Congress. Business has generally opposed these measures as unneeded and claimed them potentially harmful to continued development of the internet (Baron, 2010, P 421). The principle reason that the US government has not enacted internet privacy protection legislation is the claim that self-regulation is working.

The European Union has taken a different approach to internet privacy.  It enacted the European Union Data Protection Directive, providing strong privacy protection for all personally identifiable information (PII). Additionally, companies are not allowed to transfer PII outside the European Union unless the recipient country provides “adequate” protection.   In summary, the EU has developed an “opt-in” standard while the U.S. has relied on the user to “opt-out” (Baron, 2010).

We live in an ever increasingly digital age and the reality is that the average American now relies on the internet to interface with their banks, employer, physician, family, friends, and a host of other stakeholders.  The complex nature of the internet, coupled with the necessity to use the internet for activities of daily living, has created great potential for PII to be gathered and used inappropriately.  It appears that this trend for internet usage will only continue to increase, so the risk will also increase.  Since the EU strategy for internet privacy is the most conservative, it would be my preference for implementation in the United States.  I believe that concealment should not be the goal of internet privacy and that instead we should attempt to achieve a process that allows a person the ability to control disclosure of their PII, without fear that someone else is using it without their permission.

About the Author

Jerry Landers is the Vice President of Business Development for Aspire Indiana. While the beliefs and opinions expressed in this blog are solely those of Mr. Landers you can learn more about community mental health and how it intersects with business and media at http://www.facebook.com/AspireIndiana

References

Baron, D. (2010), Business and Its Environment (6th ed). Upper Saddle River, NJ: Prentice Hall.

Buzzle.com, (2012), Ethical Issues of Internet Privacy, Retrieved from http://www.buzzle.com/articles/ethical-issues-of-internet-privacy.html

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Christianity and Capitalism

            There is a bias within our American culture that seems to say that business men cannot be Christian and Christians cannot be business men. In a story written for the Huffington Post, Neroulias (2013) reports that a new survey found that 44 percent of Americans polled find the free market conflicting with Christian values. The survey, conducted by Public Religion Research Institute with the Religion News Service, “found that although conservative Christians and evangelicals tend to want their clergy to speak out on issues like abortion and immorality,” they are more likely to support economic views that are “left-of-center.” (Neroulias, 2013)

            The Survey also produced other indicators worth mentioning.

“Half of women believe that capitalism and Christian values are at odds, compared to 37 percent of men.

A majority (53 percent) of Democrats believe capitalism and Christian values are at odds, compared to 37 percent of Republicans and 41 percent of independents. A majority (56 percent) of Tea Party members say capitalism is consistent with Christian values.

Nearly half (46 percent) of Americans with household incomes of $100,000 a year or more believe that capitalism is consistent with Christian values, compared to just 23 percent of those with household incomes of 30,000 a year or less.” (Neroulias, 2013)

Others argue that not only does Christianity have its place in capitalism, but that it is the founder of capitalism. According to Novak, it was the church more than any other agency that created the conditions for the development of modern capitalism. The church helped establish the rule of law, a process for resolving disputes, established a specialized labor force, and sustained intellectual and physical efforts. (Novak, 2012)

Webster defines capitalism as an “economic system characterized by private or corporate ownership of capital goods by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market.”  Crockett says capitalism and Christianity go hand in hand, as demonstrated by comparing Webster’s definition of capitalism with scripture. Crockett states that “God affirmed the validity of personal ownership in the 10 Commandments” in Exodus 20:15, “Thou shalt not steal.” Productivity is also fundamentally good, Gen 1:28 says, “Be fruitful, and multiply.” Employment is fundamentally good, as Luke 10:7 says, “the laborer is worthy of his hire.” Commerce is fundamentally good, as stated in Prov. 31:16, “She considers a field and buys it; out of her earnings she plants a vineyard,” and in Prov. 31:18, “She sees that her trading is profitable”.(Crockett, 2013)

Crockett strengthens his argument for the compatibility of capitalism and Christianity with the Parable of the Talents found in Matt. 25:14-30. In the parable the master rewarded the servant that took the talents and multiplied them and chastised the servant that did nothing.  This parable is symbolic of the nature of capitalism and speaks to the Biblical expectation that productivity is good.   (Crockett, 2013)

Despite the fact that “separation of church and state” is a common question brought up among many advocacy groups and not-for-profits engaged in a wide range of enterprises, Baron does not address the issue. I find this a curious short coming of his work. In his opening chapter, Baron describes the non-market environment of a firm by the “four I’s”, Issues, Interest, Institutions, and Information. (2010, P. 11) Religion crosses every one of those characterizations. While Baron does not speak directly about religion, I believe he does provide a substitute with the idea of morals and ethics.  It should also be noted that Baron does include “moral concerns” as one of his five basic sources for non-market issues. (2010, P. 11) In chapter 20 of his book, Business and the Environment, Baron (2010, P 654) establishes that “ethics are based on moral standards that are independent of the declaration of governments or other authoritative bodies”.

Since Baron has already established that ethical issues will lead to the development of non-market issues and business must respond to non-market issues, then ethics has its place in business.  Since Baron has further established that ethics are independent of worldly authorities, I can, therefore, conclude that Christianity and capitalism not only can be compatible, but that true capitalism cannot exist without influence that comes from beyond our “government’s authoritative bodies.”

About the Author

Jerry Landers is the Vice President of Business Development for Aspire Indiana. While the beliefs and opinions expressed in this blog are solely those of Mr. Landers you can learn more about community mental health and how it intersects with business and media at http://www.facebook.com/AspireIndiana

References

Baron, D. (2010), Business and Its Environment (6th ed). Upper Saddle River, NJ: Prentice Hall.

Neroulias, N. (2013) Poll: Americans See Clash Between Christianity, Capitalism, Retrieved from http://www.huffingtonpost.com/2011/04/20/poll-americans-see-clash-_n_851712.html

Novak, M (2012), How Christianity Created Capitalism, Retrieved from http://www.acton.org/pub/religion-liberty/volume-10-number-3/how-christianity-created-capitalism

Crockett, J (2013), Is Capitalism Christian? Retrieved from https://vimeo.com/57477818

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