By Kang Hee-Joon
BLOOMINGTON, Ind. – The main objective and primary social responsibility of a firm or a company is to maximize its profits and remain financially successful. This priority is widely accepted in the textbooks and corporate executive offices in the United States and other industrialized capitalist countries. I am confident that most employees of a corporation would also agree with this priority.
But should the profit maximization be the main objective of a company? Many, if not most, Americans would affirmatively answer this question. However, there are non-profit corporations, which, by definition, do not maximize their profits. Most educational institutions, many hospitals, and virtually all charity organizations do not maximize their profits, because they have other more important objectives.
It is surprising to learn that some economics and business textbooks in Korea flatly deny that the main objective of a company should be profit maximization. Instead, emphasis is placed on companies to fulfill their social responsibilities. In addition to being profitable, typical corporate social responsibilities include adhering to the law, refraining from harming others and other environments, taking care of stakeholders and being good corporate citizens by supporting charities and other community services.
However, there are some business people who have a narrow view of corporate social responsibility. This narrow view only concerns profits. Those people who maintain this view assert that all other social responsibilities are only secondary, which can only be justified when a company indeed makes profits.
In fact, the former CEO of General Electric Company, Jack Welch, stated on page 381 in his book co-written with John A. Byrne, “Jack, Straight from the Gut”: “I believe social responsibility begins with a strong, competitive company. Only a healthy enterprise can improve and enrich the lives of people and their communities. When a company is strong, it not only pays taxes that provide for important services. It also builds world-class facilities that meet or exceed safety and environment standards…”
In making profits, many companies engage in activities that seemingly counter their social responsibilities. Many manufacturing companies in industrialized countries have lately been reducing the number of their workers. The issue of outsourcing, especially, outsourcing to foreign countries, is a hot topic in Korea as well as in the United States. Socially responsible companies ought to hire domestic workers instead of going abroad by abandoning their employees in favor of foreign workers. Critics, however, fail to see a possibility that a company may go bankrupt if they do not go abroad. It is ideal to hire domestic workers and be profitable. Yet, bankrupt companies can be more harmful to the society.
Ideally, a socially responsible company should not only make profits but also take good care of their shareholders, customers, workers, suppliers, communities, government and charities. All those other responsibilities are only possible, however, only when a company is successful and makes profits. The most important responsibility of a company is to make sure it is successful and profitable.
No matter how socially responsible a company may be, it cannot continue to be a good corporate citizen if it does not grow with profitable business activities. A company may have a good welfare program for its workers and their dependents. It may make sizable donations for the good cause of the society. Their good-will behavior cannot continue if the company is financially in troubled.
Modern corporations are remembering to be socially responsible. Balance should be achieved by properly addressing all other dimensions of social responsibility while making profits, the first priority. Without making profits, corporations cannot take good care of their workers, customers, and other stakeholders.
This priority should be recognized within society. If society demands social responsibilities at the expense of profits, it may lose everything, because such corporations may not exist for a long time. Yes, charity activities and socially responsibility of all stakeholders should be important, but corporations should be encouraged to concentrate on making profits as long as they do so legally and ethically.
Corporations hire workers, pay taxes, serve customers and suppliers, and constantly improve technology. Indirectly, they do participate greatly in the advancement of human welfare. Profit maximization should not only be recognized but also be strongly encouraged.
Society should first understand the priority of a corporation is to make profits. Secondly, it should reward more socially responsible companies by buying more of their products. The public should encourage entrepreneurs to make as much profits they are legally and ethically entitled to. kang@indiana.edu.
By Kang Hee-Joon, professor of business economics and public policy at the Indiana University Kelley School of Business, member of The Korea Times Economic Editorial Boar