Profit maximization VS Social responsible.

Essay by bu5t3r October 2003

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Organizational culture can be defined as a system of shared meaning and beliefs within an organization that determines, in a large degree, how employees act (Robbins, Bergman, Stagg and Coulter, 2003: 70). It includes routine behaviors, dominant values in an organization, norms and ethics, and work climate that want to be created in the organization. The purpose and function of organizational culture are to help bringing staff members from all levels of the organization become closer, to enhance the performance of the staff, and to become an inspiration for the staff. In an organization, there are so many ways for the staffs to learn about the culture of the organization, such as: stories from the founder or media about the company, rituals in the organization (such as: recognition, award ceremonies, annual picnics), material symbols that shows the organization's personality, and "special" language that used in the organization (Robbins et al.,

2003: 79).

But, sometimes it would be hard for staffs to learn about the organization's culture only from stories, rituals, etc. So, there are some policies or practices that a manager of an organization can put in place in order to encourage an ethical organizational culture. First, a manager could provide some training sessions so that the staffs would be able to learn and adapt with the organization's culture. Second, a manager could give a penalty or something like it to staff that doesn't practice the organization's culture in their day-to-day work. Third, in correlation with one of the way to learn organization's culture which in from ritual, in this case award ceremonies, a manager also could give an award for staff who do the best in practicing the organization's culture. With these ways, a manager will be able to encourage an ethical organizational culture in the organization.

Basically, an organization can have one from two possibilities type of culture. The first one is culture that only for maximizing profit and the second is culture that put social responsibility as main objective. Like what have been said before, one of the functions of organizational culture is to become an inspiration for the staff; it means that from the culture, the staff could understand what is the main objective from the organization, whether maximizing profit or being socially responsible.

These two possibilities of culture are reflected from opinions about organization's social responsibilities that in fact, lie mainly between two opposing views. On one hand, the classical view states that business is an economic institution directed towards profit whose only responsibility to society is to provide goods and services and to return maximum benefits to shareholders (Robbins et al., 2003: 136). The Nobel Prize winning economist Milton Friedman supported this classical view. Friedman said the primary responsibility is to operate the business to satisfy the interest of shareholders, and this interest of course is profit maximization (Robbins et al., 2003: 136). He also stated that being socially responsible is just like taxing the organizations - taking money away from these organizations for the benefit of others ( On the other hand, there is the socioeconomic view that states business is a part of the larger society and, therefore, it has responsibilities other than simply maximizing profits (Robbins et al., 2003: 137). The argument behind this view is that organizations are not independent entities responsible only to stockholders (

For culture that put social responsibility as main objective, it means that the organization must have long-term goals that are good for society and it also required organization to determine what is right or wrong by seeking out fundamental ethical truths (Robbins et al., 2003: 165). Organizations with this culture will always consider about their environment in every decision that they made. And, for this type of culture, maximizing profit is only the second priority, not the first one.

In addition, organizations that put social responsible in their organization's culture, they believe that being socially responsible means that they will get a good public image because they have satisfied the public expectations which could lead to the acceptance from society. And, not only from the society, organizations with this type of culture will be able to help solving social problems which could lead to the acceptance from government. That's why, managers in some organizations be concerned about the development of organization's culture.

But, the problem is, in any business, the main motive is of course not being socially responsible, but making profit. Businesses need to return the money that they have invested in the market as soon as possible, and the fastest way of doing this is of course by profit maximization. When an organization engages in a business, they will face competition from other organizations in the same market. So, for an organization, to beat its competitors and stay in business as a market leader, the primary way is that they have to lower the price of its goods or services. In many case, the company with the lowest price will most likely have an advantage in selling its product or services compared to its competitors. And, the only way to achieve this is by reducing the cost of business by minimize the unnecessary expenses. In this case, being socially responsible adds cost of doing business. These additional costs will be passed on to the consumers of the product, and this does not give an organization advantage over its competitors. For example, let's say company X and company Y enters the market of making perfume together. Company X acts socially responsible and acts in the interests of the society, and on the other hand, company Y satisfies only the minimum requirements of social responsibility that is required by the law. In this case, of course company Y's products will be cheaper than company X's product because it has less production costs. And if a consumer goes to the shop to buy perfume, most probably the consumer will choose company Y's product, because it is cheaper. In this case, company Y gains the market share in the short run and most probably the long run as well. So, when a company is making profits there is no incentive for it to act socially responsible.

One more point about this is that the business in an organization belongs to the shareholders. The shareholders are the ones who fund the business and they should be the ones who decide what to do with the profits that they gain from the business. A manager in any organization has no right to spend the shareholder's money on any social purpose. The main duty for a manager here is providing profit to the shareholders. This strongly proves that the classical view should be used to satisfy the organizations responsibility to the shareholders. When the money is returned to the shareholders, then they should decide what to do with it, because as the owners of the organization, they have the right to spend the money however they want. After the organization has fulfilled its main duty to the shareholders, then it possible for the organization (if the shareholders had agreed) to move on to act socially responsible towards the society.

Moreover, no organization is forced to be socially responsible. It means that as long as a company acts inside the limit of the law, they are acting socially responsible. Other than that, they can't be forced to pursue social interests. Every action of the organization will have a motive, and in this case if they are doing just like what the society wants, they will have their own "hidden agenda". This means that organizations act socially responsible not because they want to, but because they have to. If given a choice, most probably they would disregard the social responsibility and pursue economic goals only, in this case maximizing profit.

Another argument that against the culture that follows socioeconomic view is that most organizations, especially those organizations that produce harmful material, practice social responsibility just to divert the society's attention away from the business operation. Products based on tobacco and alcohol has been long unwanted by the majority population in a society. Companies like Gudang Garam, Bentoel Indonesia, Sampoerna in a way are actually forced to practice social responsibility because they want to maintain their business. Even though they are considered to be a company that is socially responsible because they have paid more tax to the government, it is assumed that their products will cause many deaths in this world. So, in the long run, the society will actually be worse off from the organizations business practices. Social responsibility is used just as a means to cover up the business practices that otherwise would not be accepted in the society. So, the social responsibility issue is used more of a cover to protect bad business practice rather than to serve in the society.

There is one more interesting example that can be used to prove that socially responsible culture is not as good as what it used to be. It is the recent case about Enron. Enron is a company that grew very fast; in just 15 years it emerged to become America's seventh largest company ( But, it didn't last for a long time because now Enron has been declared bankrupt. In the duration 15 years, Enron was a company that acted socially responsible, producing social reports, increasing the society's social well being and also donating millions of dollars a year to increase the social well being of the society by investing more and more money on the social security fund ( But now, critics say that the company has always been a poor company. The company has lied about its profits through out the 15 years of operation. But all these flaws were not detected due to one reason; the company was acting socially responsible towards the society. This actually proves that organization social responsibility is actually used to cover up a lot of flaws. It acts as a shield for companies such as Enron. If the society were more aware and looked at Enron beyond its social responsibility involvement with the society, the whole scandal could have been avoided.

Next, the other point against organization social responsibility is that even though it has been proven in some cases that incorporating social responsibility is profitable, not many organizations prefer it because social responsibility talks about profits in the long run, where else businesses need the profits now just to survive and carry on with business operations. Many organizations realize the long-run benefits of corporate social responsibility but cannot afford to sacrifice short-term needs for long-run benefits. Moreover, what is far from now is always thought as something that more risky. Many businesses are simply not sure that they will stay in business long enough to receive the benefits from the culture that gives priority to social responsibility. For example, if a company try to be socially responsible when they want to produce something of course they will have to pay more, because in most cases, equipment that environmentally safer is more expensive. Even for the long-term these equipments give more advantages, but all of these advantages will be useless when the product is not sell well in the market and the company went bankrupt. So, in most organizations, short-term goals are much more important for them than long-term ones.

Another reasons that against social responsibility is that business leaders are also lack the necessary skills to address current social issues (Robbins et al., 2003: 139). They might not have the ability and experience to analyze the situation well and make good decisions regarding social responsible. This is because it is not their jobs to do so. The job of addressing social issues is left to politicians and government officers because it is their jobs to solve social problems. Business leaders should only keep their mind managing their organizations and think of ways to compete in the market in the industry that they are operating in.

Beside that, organizations are already charged with corporate tax by the government. These taxes are a very large source of revenue for the government. And, if a company adopts the socioeconomic view, they would donate money to charitable organizations or spend money on maintaining their social responsible. The money used for this purpose won't be charged by tax, so it will leave the government with less revenue and making it less powerful in the eyes of the society. For example, every 10 million a company spends to promote social well being, the government will be poorer by 10 million. This makes the organizations much more powerful than before, because now not only they control the business sector but also the social sector (Robbins et al., 2003: 139). The government will become powerless against them, especially when the organization has spent a lot of money to the society. And, when organizations have too much power, it can be dangerous to the society because they can then do whatever they want and there would not be anyone to control them, even the government. So, it is better if the company pays the tax to the government, and then let the government to decide which public sector needs to be developed with that money.

In conclusion, the topic of organizational culture will always be something that will be argued about. Both the classical and socioeconomic view will be used in various organizations around the world. But, the fact still remains that any organizations main goal is of course, without any doubt anymore, economic interest, in most cases equal to profit. No organizations in this world, except for non-profit organizations, like Social Investment Organization in Canada (, will open a business to take care of the society's well being. Since economic interests are the main priority of any organization, it can be said that all organizations actually practice the classical view in the real world. Classical view is something that is realistic and in fact is being put to practice by all organizations in their organizational culture. On the other hand, the socioeconomic view is a little bit unrealistic and when it is used, it makes the organization to become just like a human being rather than a business. The classical view of profit maximization is a realistic and applicable view while the socioeconomic view is more just like a "cover" for organizations, like what have been said before, who need the attention from the public to cover their flaws in the business. The classical view will always be something that practiced by organizations because the main purpose of any organization is profit maximization.


-Robbins, Bergman, Stagg and Coulter, 2003, Management 3rd Edition, Pearson Education Australia, Frenchs Forest

-Eksekutif, 2003