Paradigm Shift of Firms from Capitalism to CSR (Rationale) The integration of social

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Paradigm Shift of Firms from Capitalism to CSR (Rationale) The integration of social responsibilities in business that emerged with the financial capitalists spurred a fierce debate on whether or mot CSR should be included in the corporate objective function. the earliest reference to such criticism appears to be Ghent, who in 1902 criticized this new trend for its similarity to the economic feudalism of the middle Ages, and who argued that CSR was being used as a tool for forestalling public criticism and regulation rather than from an actual concern for social issues (as reported by Heald, 1957). Similar but more specific arguments have since been provided by Levitt (1958), Friedman (1962: 1970) and recently Jensen (2002). Ghent did…show more content…
In order words, the only ethical approach to CSR, according to Levitt (1958), is to pursue CSR when profitable, but to also admit that profit is the real objective behind any socially responsible activities. Levitt (1958) further warns against the dangers of pursuing ambiguous corporate objectives, such as those implied by CSR, rather than the well-defined traditional objective of profit maximization. He argues that as soon as the corporate objective function includes CSR, this leaves managers with the luxury of making value judgments on which social issues to pursue and which not to pursue. in effect the multiple objective function reduces to the single objective of maximizing the manager’s utility. Maximizing the shareholder value A well-known approach is that which takes the straightforward contribution to maximizing the shareholder value as the supreme criterion to evaluate specific corporate social activity. Any investment in social demands that would produce an increase of the shareholder value should be made, acting without deception and fraud. In contrast, if the social demands only impose a cost on the company they should be rejected. Friedman (1970) is clear, giving an example about investment in the local community: ‘‘it will be in the long run interest of a corporation that is a major employer in a small community to devote resources to providing amenities to that community or to improving its
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