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Managing, Leading and Stewardship (Autumn Semester 2016) Group Reflection Template for Week 7/8
Group name The Legends Facilitator: Rabbani Karim
Group members present
David Ajang Stella-Anne McNamara Matthew Schmalz Jessica Wu & Ruixue Zhang
Scribe: Guy de Villiers
Group’s Critical Reflections on “Rethinking the Social Responsibility of Business: A Reason debate featuring Milton Friedman, Whole Foods’ John Mackey, and Cypress Semiconductor’s T.J. Rodgers (Week 7 on UTS Online)
Activity: Student groups have to prepare a two page summary of their view for and against each of the three perspectives presented in the above reading and submit to tutor in week 9. The summary should be written as a statement/viewpoint so no references are required.
Group Summary: The views represented in the debate centre around the following argument lines:
1. Altruism is not a business philosophy Friedman (deriving much of his argument from neo-liberal and agency theory) establishes that the main philosophy of business is to make and increase profit, as long as organisations engage in open and free competition without deception. He refers to the hypocrisy of using any other lens on business’ purposes. Rodgers laregly sides with Friedman’s position, agreeing with the idea of hyprocricy and commenting on the potential for socialism as the only other outcome. Mackey (drawing on stakeholder theory) disgarees, focusing on value creation (rather than profit) by placing the customer first (as opposed to the shareholder), Mackey encourages us to think of the relatonship between stakeholders, even if it remains a limited view about how many stakeholder groups should benefit as part of the business approach.
2. Shareholders should be the ones decide (on an individual level) which approach should be taken. A natural extension of both opening statements, Friedman and Rodgers argue that as the compnay is built on the shareholders’ capital, it should be the shareholders (either on an individual level or corporately) who decide how the profit philosophy should be established, affirming that companies are not experts in the social agenda, but that individuals could still choose to use their profits for social good. Mackey disagrees, recognising the importance of other stakeholders (suppliers, employees, communities and the environment) as an integrated whole in the value proposition. These differing approaches highlight fundamental differences in the concept of ownership. Mackey believes that the entrepreneur’s vision which created the company in the first place should decide corporate goals (such as where social responsibility lies) whereas his antagonists only recognise shareholder primacy.
3. Good business practice already relies on a range of stakeholders All three writers recognise this, but they differ in terms of hierachy and value creation. For Friendman and Rodgers, good business relies on these stakeholder relationships ordinarily to generate profit. For Mackey, these relationships are designed to generate value for all stakeholder groups, and are not measured only in financial terms.
4. Competition is not necessarily negaitive; it can also produce the desired social outcomes. Friedman is the only one of the three to specifically mention competition which he sees as intrinsic to profit generating activities. It could be inferred that Mackey implicitly acknowledges competition when he, on several occasions, gives details of the astounding business success of his company, Whole Foods. In fact, Friedman praises the success of Whole Foods in a competitive marketplace. Rodgers, however, does not
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comment on competition as part of businesses striving to maximise shareholder returns. He limits his comments to the way divisions within his organisation compete against each other to raise donations of food to stock the local Food Bank, an example of community involvement and a successful public relations exercise for the company.
5. Companies are held to higher moral standard than individuals Only Rodgers explores this idea, although to some extent Friedman touches on the same idea in discussing hypocrisy. It is Mackey’s so-called ‘arrogance’in implying that only companies which follow his company’s lead in social responsibility create a better environment that prompts Rodgers’ comments. He claims that a review of company behaviour shows that the public have greater grievances with far many indoviduals than they do with to respects to individual businessmen. He does not, however, present any survey evidence to support this comment nor does he explore the role of the regulator in setting governance standards.
6. Innovation cuts cost but requires capital Rodgers sees his drive to cut costs of production in the semiconductor industry to maximise shareholder value as instrumental in cutting costs in other industries. For example, by significantly reducing the cost of a transistor, accounting costs fell through the introduction of cheaper computers for companies such as Whole Foods. Again we see the difference in approach to profit. While Rodgers sees shareholders as the stakeholder which must win, Mackey believes in value creation for the benefit of all stakeholders and rejects the idea that ethics and economics can be segregated (the “separation thesis”).
7. The role of unions in layoffs Rogers and Mackey initially appear to differ significantly on these points. In the face of strong international competition the semiconductor industry in the United States had to initiate employee layoffs.Rodgers claims that these non- unionised lay-offs were “… good news…” to the unionised employees of Whole Foods. However, Mackey points out that none of his employees are members of a union and that he and his staff sympathised with lay-offs in the semiconductor industry. In conclusion, all three commentators are at heart profit producing businessmen. Rogers and Friedman attack Mackey as hypocritical because his approach to social responsibility has benefitted the business as well as stakeholders at particular times. For Rogers, capital is needed for innovation, and that capital is derived from shareholders who should have their say in how profits are distributed. For Friendman, profit making is for the benfit of the shareholder, whilst for Mackey, value creation is an important part of the business philosophy, but he too recognises the importance of profits which are the means to an end within the value creation process.
