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Ethics in management and corporate responsibility

Ironically, the concept of business ethics was conceived by a man who works in neither business nor ethics. The economist Milton Friedman wrote the article "The Social Responsibility of Business Is to Increase Its Profits" and in this article he argues exactly what the title suggests - that profiteering that does not break the rules, engage in fraud, and use its resources appropriately, is a social responsibility. He argues essentially that businesspeople are ethical only if they do all they can to ensure the increase of profits within a law abiding company. So, as long as there is no foul play, a businessperson is acting morally when they are maximizing and increasing profits. It has been found recently by a meta-study (or a study of a number of studies) that high financial performance goes with social responsibility and environmental responsibility. This study is significant because it combines years of research from experts and theorists across many industries.

The highlight of these studies was one that was awarded for research in social investment - the Moskowitz Prize of the Social Investment Forum. The study, which was undertaken by Marc Orlizky, Frank Schmidt, and Sara Rynes from Sydney University, and Iowa University, compiles 52 separate studies over a 30 year period. In this comprehensive review, the question of whether corporate performance and social performance was as close to being answered as ever before, with a high statistical association between the two. This statistical association was found to be between moderately and highly positive.

Theories for why this link exists could be in the association between profits, good management, and consumer morale. One prominent theory is that of corporate social responsibility, that shows that there is a successful, well balanced, created and sophisticated manager getting the job done. For example, companies with better profits are more likely to hand out bonuses, and have more resources for social events. It is a positive feedback loop - a financially successful company will be able to spend more because they are able to afford it, which boosts morale and hence performance and hence more profits. This paper sees both of these theories as likely, with corporate social responsibility and extra expenditure helping the company to be successful.

What about the capabilities of a company in relation to hiring new employees with new skills? There is plenty of literature that has researched the effects of new employment making new capabilities, and is if often noted in business press. One of the most effective ways to transfer knowledge between organizations is by the movement of researchers and scholars from colleges and universities to such businesses (Dasgupta, David (1994), Zucker, Darby (1997)). Henderson (1994) notes that that employing individuals with high levels of skill is highly important for a firm to be able to merge different types of capabilities and knowledge. On the other hand, McKinley (1982) and Penrose (1959) state that certain existing employees may carry such capabilities, acting in a similar way to genetic transfer. The significant and beneficial presence of intellectuals is noted in the development of technology firms, and there is a positive correlation in the proximity of scientists and the development and high performance of such firms (Dasgupta, David (1994), Zucker, Darby (1997)). Others note that the movement of certain people is closely correlated with effective knowledge transfer, and that this has had a positive effect on the market value of biotechnology firms. It is stressed by Zucker and Darby that in a study on the adoption of biotechnology by a large firm, the employment of highly skilled people was crucial in the firm's transformation, in terms of new strategies and organization, not simply in the areas that the said employees had expertise. It has also been found by Groysberg (2001) that employment transfer has a negative short term effect for the individual in the question and for the new firm, and this effect is more pronounced when the new firm has a lower ranking than the old firm. This indicates that other factors need to be considered to help improve performance. It has been recognized that firms are also influenced by their idiosyncratic characteristics when it comes to choosing new employees. It has been found that firms that are not performing well have a higher chance of employing from competing firms, and this has been shown to improve performance (Roa, Drazin (2002)).

In conclusion, upon consideration of analysis from the pharmaceutical industry, a positive correlation has been found between the employment of highly capable scientists, and a shifting stance to scientific adaptations and research. External hiring has also been found to have a marked influence upon the capabilities of an organization in this industry. The things that have influenced the rate of research into this subject show what there is an interesting relationship between the capabilities of the individual and the capabilities of the organization as a whole, which is exactly the type of relationship that is needed to turn free market employment into better and more innovate organizational capabilities.


Arndt, M. and A. Weintraub (2003) "Feeding the Pipeline. How the Drug Giants Are Reinventing theirLabs to Boost Productivity." Business Week, May 2003.

Arrow, K. (1962) "Economic Welfare and the Allocation Of Resources For Invention." In R. Nelson (ed.) The Rate and Direction of Inventive Activity. National Bureau of Economic Research, Princeton University Press, Princeton (NJ). Pages 609-619.

Dasgupta, P. and P. David (1994) "Towards a New Economics of Science." Research Policy, 23:487-521.


Hamilton, B. J. Nickerson, and H. Owan (2003) "Team Incentives and Worker Heterogeneity: AnEmpirical Analysis of the Impact of Teams on Productivity and Participation," Journal of Political Economy, 111(3):465-497.