Profitability and Responsibility – Relationship

Profitability and Responsibility – Relationship

Profitability and Responsibility – Relationship

Perhaps the most powerful argument against the business assumption of social responsibilities is the classical economic doctrine of profit maximization. This doctrine was presented by Adams Smith in 1776 and has influenced economic thinking since then. The doctrine explains that businessmen perform a social good when they improve efficiency and reduce costs in order to maximize profit. Even though the. are dm en by their own selfish desire for profits, the invisible hand of competition forces them to act in the public interest in the long run by reducing costs and prices. Thus the businessman is most socially responsible when he attends strictly to business interests and leaves other activities to other institutions.

Since business operates in a world of poverty and hunger, the economic efficiency of business is a matter of top priority and should be the sole mission of the business. Business’s function is economic, not social, and economic value should be the only criteria used to measure success. In this kind of system, managers are the agents of the stockholders, and all their decisions are controlled by their desire to maximize profits for the stockholders while reasonably complying with the law and social custom.

Modern theoretical and experiential analyses specify that firms can tactically connect in generally accountable activities to enlarge private profits. Given that the firm’s stakeholders may value the firm’s social efforts, the firm can get extra profit from these actions, including: enhancing the firm’s status and the capability to create profits by differentiating its product, the aptitude to draw more extremely capable workers or the capability to extract a quality for its products.

According to this line of reasoning, if executives do use resources for social responsibility, they are in effect imposing taxes and then deciding the taxes shall be spent.

Share This Post