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Name: Syeda Rija Haider

Course: Business Ethics and Corporate Social Responsibility

Instructor: Razi Allah Lone

Date :21st Novemeber 2017

1. In “What Price the High Moral Ground “Robert Frank presents an analysis of the juxtaposition between
the willingness of individuals to obtain a particular job and the moral worth of that job. Endeavoring to
disprove the basic economic assumption that human beings are inherently self-interested, Frank quotes
evidence from his own study as well as existing studies that prove the claim that even after accounting for
several structural differences such as those in gender, curriculum, ability and productivity, people in more
morally worthy jobs are lower paid and they willingly chose to work at this lower pay. In essence, there is
a tradeoff between moral satisfaction offered by a particular job and pay.

An evaluation of Frank’s article can be extrapolated to deduce a possible explanation for the high salary of
business executives. By using the basic laws of demand and supply, Frank asserts that the pay of a specific
job is determined by the value that the market assigns to that particular job. Frank says that if two jobs are
similar in all respects (salary, working conditions, workload) but one job is more morally satisfying, then
individuals will prefer that job over other jobs i.e. there will be more demand for that job. Consequently,
the less morally worthy job will be in excess supply. Therefore, for the less morally worthy job to attract
candidates, it has to offer a premium to the job seeker and that premium is higher pay. Results from the
Cornell 1998 employment survey quoted by Frank show that jobs in the nonprofit and government sector
are ranked by graduates as being more morally satisfying than jobs in the for profit sector. In order to
compensate for this lack of moral worth therefore, the for profit sector has to increase remuneration. This
is a plausible explanation for why business executives are paid higher because they work for the for profit
sector and therefore firms need to offer them a premium for accepting a less morally worthy job.

Moreover, Frank argues that there is a rate at which a job seeker makes a tradeoff between moral satisfaction
and pay. So if two jobs are differently situated in the moral worth or social responsibility scale, then
individuals will have a threshold of excess pay at which they will be willing to switch to the less morally
worthy job. In other words, every individual has a switching cost. He says that these switching costs
resemble large premiums over the morally satisfying jobs because in most cases the job seeker is equally
able or abler to obtain a higher paid, less morally worthy job but consciously chooses a lower paid job that
has moral worth. For businesses to attract the right talent for strategically important positions therefore,
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they have to offer higher paid jobs as a switching cost premium to business executives. This explains why
pay is substantially higher for business executives compared to similar nonprofit roles.

Thirdly, the relationship between incentives and productivity can cause business executives salary to be
higher. The studies reflect that for many individuals the moral worth i.e. helping people is an ideal attribute
for a job. Therefore, it can be said that for jobs that offer moral satisfaction, there is an intrinsic incentive
to be productive. However, for jobs in the business sector which are not as morally satisfying, there is a
lack of incentive to be productive and this incentive is then created in the form of higher pay.

However, Frank’s discussion is not the only plausible explanation for higher business executive salaries.
Even if factors such as gender, ability and curriculum are accounted for like Frank’s claims to do through
his study, it ignores the internal workings of business organizations. Primarily it excludes from discussion
the principal agent theory that claims that business executives are paid higher salary to prevent conflicts of
interest between the agents and the principal i.e. making sure executive compensation is linked to company
profitability as to ensure the interests of the shareholder and managers are aligned. It also ignores the fact
that there is information asymmetry in the market and sometimes collusion between highly paid executives
and work place politics makes premiums over morally worthy jobs or switching costs excessive.

So although Frank’s findings are helpful to understand the link between measures of moral satisfaction and
pay, they should not be used in isolation from the ground realities of the business world.

2. With the advent of the postmodern era, there has been an evolution in the way that the society views the
business organization and its functions. Previously viewed solely as a vehicle for profit maximization,
business organizations are now viewed as socially accountable agents who are expected to incorporate
social values in to their strategy. Social values in this context can be defined as the desirable norms or
preferred standards of behavior that the society expects its members and the institutions that are present in
the society to adhere to. These include ethical values such as truthfulness and integrity, transparency, merit,
dignity and respect, cultural conservation, equal treatment as well as caring about the environment.

Business organizations have realized this need and are already taking initiatives to incorporate socially
responsible behavior into their operations. They have adopted a twofold route to this project. Internally,
many firms, especially multinationals have incorporated corporate social responsibility programs in their
Human Resource function. These are set up with the aim to undertake projects which give back to benefit
stake holders other than shareholders, specifically the community that the business is thriving in. Examples
of such projects are city wide clean-up programs, adopting sustainable practices, supporting indigenous
suppliers such as farmers, renewable energy programs etc. All these programs aim to redefine the
responsibilities of a business vis-à-vis the environment and society. The human resource departments of
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many companies are also undertaking initiatives to promote gender and racial diversity in the work place,
making sure there is no active discrimination and members of disadvantaged communities are facilitated in
their work. An example of this is the development of daycare centers in many companies where baby-sitting
facilities are provided to children of working mothers. They also incorporate principles of non-
discrimination and transparency in their respective charters and maintain these practices in their recruitment
activities etc.

In addition to this, many business organizations have been entering into partnerships with organizations
that have specifically been found to work on redefining the nature of interactions that businesses have with
the society and make them more socially responsible. These include institutes such as World Resources
Institute, SustainAbility (London), CERES, Redefining Progress, United Nations Environment Programme
(UNEP) and Development Program (UNDP) etc.

Even though they are a positive step towards the promotion of socially responsible behavior, the pace at
which these initiatives are embarked on is not enough. In ‘Once upon a Planet’ Hunter and Lovin propose
that there needs to be a complete re-haul in the business practices of firms to ensure socially responsible,
environmentally friendly behavior. Specifically, they suggest that businesses should incorporate the
principles of natural capitalism into their strategy, an approach that emphasizes on resource efficiency and
sustainability. This approach, which other theorists such as Hart also endorse, proposes that businesses will
need to evaluate the efficacy of their technology and products and even abandon certain successful products
if they can be replaced with more efficient, socially responsible products. In addition to that, businesses
will need to make cross industry alliances even with competitors in order to implement the resource
productivity approach. Moreover, there has to be a review of the destructive trade policies that businesses
globally engage in to gear them towards conservation and protection of the environment, cultural practices
and remedy social injustice. A practical method to take account of the externalities (the loss of social,
natural and cultural capital) is to include them as costs in the accounting process and add them to the cost
of the products so that organizations can then try to minimize these externalities. What follows from this is
that all capital, whether it be human capital, social capital or natural capital is assigned a value so that this
value is then consequently protected. In Hunter and Lovin’s words, there should be a shift from the question
of what organizations should produce to what is worth producing. Incorporating limits to what is being
produced and eliminating excess is critical to incorporating social values in business strategy. Moreover,
organizations must attempt to restore the damage that they have already inflicted on the natural environment
which has caused natural capital to decline.
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In essence, organizations that operate in the corporate sphere should ensure that they incorporate social
values into their strategy by adopting sustainable, resource efficient practices that have a long term view of
protecting cultural, natural and social capital.

3. As with every social institution, the question of where businesses should be situated in the social structure
i.e. the role of business in society is called into question. There are differing views about the role of business
in society. The traditional view espoused by economists such as Milton Friedman views the sole purpose
of the business as a vehicle for maximizing profits, as long as a business confirms to ethical and legal norms,
it’s not it’s responsibility to work for or care about macro level social aims. Milton Friedman goes as far as
to argue that if business managers are concentrating on something else other than its goal of profit
maximization, they are essentially working to the detriment of its shareholders by deviating from their
interests (principal agent conflict) and therefore businesses should restrict themselves to the basic function
of provision of goods and services for profits .Other theorists also advocate this restriction of the role of
business in society but offer a different line of argument :the argument of efficiency .Bar and Altman argue
that business should concentrate on creating goods and services solely because that is what they know how
to do well. Business will benefit society precisely by doing that, generating value for shareholders and
consumers.

Other theorists view business interactions from a moral point of view incorporating issues such as
sustainability and social responsibility. They argue that businesses should take into account the externalities
of their behavior. They advocate greater civic involvement for businesses and the importance of respecting
and conforming to social norms and practices. Still others take it a step further and assert that it is the moral
responsibility of the business to act in socially responsible ways. Primarily this perspective argues for
greater accountability of business organizations with respect to their activities and businesses remedying
their socially undesirable practices.

It is traditionally assumed that if corporations focus on social concerns then this will compromise their
profitability, but Fish claims that these two goals are not mutually exclusive. He argues in fact that
businesses that are socially responsible augment their profitability because consumers and potential
employees value a socially responsible firm and reward it for ethical conduct. From this derives the notion
of shared value in which by engaging in socially responsible conduct, business organizations are not only
creating value for the society at large, but also value for themselves.

There could be a variation in the place of business across cultures depending on whether a society has an
individualistic or a collectivistic culture. In individualistic cultures the notion that businesses should exist
solely for the sake of profit maximization is much more acceptable as individualistic cultures tend to focus
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on the maximization of self-interest as the primary goal for individuals to pursue and business corporations
do just that: they aim to maximize individual shareholder value. In contrast to this, cultures that are
collectivist have an entirely different view about the nature and function of business organizations. For
these cultures, businesses exist for the purpose of producing the goods and services that the society needs
and if the society is being harmed from the activities of businesses, then it does not work well for the
collective good of the society and businesses should act in more socially responsible ways. However, even
individualistic cultures are now starting to realize that the collective cost of environmental and social
damage from letting business organizations only concentrate on the pursuit of profits is too great to be
ignored and there exists a need to regulate business and expect them to act more responsibly.

From the above discussed perspectives, the conclusion that can be drawn is that even though businesses
should not forego the aim of profit maximization entirely, this should not be their only aim. In fact, the
place that society allocates to business should be one that invests businesses with a certain degree of moral
and social responsibility and expects them to fulfill this responsibility. Therefore, not only should business
activities be regulated to check unethical behavior and require businesses to act in more socially responsible
ways, these organizations should themselves consider externalities and become vehicles for creating shared
value in society instead of mere instruments for profit making.