Firms Use "Socially Responsibility" as Means To Price Gouge

In defining Social Responsibility, Milton Friedman provides an example in his article, “The Social Responsibility of Business Is to Increase Profits”, of a corporate executive refraining from increasing price in order to contribute to the social objective of preventing inflation - even though a price increase would be in the best interest of the corporation.

The LA Times reported that Exxon and Chevron both saw record earning profits for 2007. Exxon’s net income exceed that of any corporation ever came while the economy grows unstable, either on the verge of, or possibly already in a recession. This recession, or possible recession, is often attributed to the rising price of fuel. These record earnings have brought much criticism from politicians and consumer rights organizations. The criticism is largely fueled by the large tax subsidies that the industry receives from the government. Exxon company spokesman, Ken Cohen, indicated that they were challenged by meeting the increase in oil demand, prompting the price increases. He further commentated that the industry has always been the focus of attention.

Exxon is failing to optimally balance the interests of all stakeholders. I contend that Exxon is exploiting social concerns in order to increase their profits through what amounts to false regulatory taxation. In response to criticism, Exxon spokesperson Ken Cohen explains that they are attempting to “meet increased demands that are also consonant with people’s expectations in the environmental area…..” Essentially, they are using society’s environmental concerns to substantiate their price increases to curb demand, when in fact; I believe they are simply using it as an opportunity to increase profits. Regulation is a function of the government, and here, Exxon is assuming a regulatory role. If the government needed to curb oil consumption, they may decide to implement additional taxes – this is not an activity that should be used by a private corporation involving such a captive market. However asinine, it reminds me of McDonald’s opportunistic method of reducing portion sizes when they received some heat for America’s obesity problem

One of Exxon company spokesperson, Ken Cohen’s, rebuttal to criticism was that they spent $20.9 billion on exploration and other projects. Again, I believe Exxon is using representing these expenses under the false pretense that they are socially driven. Just like Friedman describes, this is a way for Exxon to generate goodwill as a by-product of expenditures that are entirely justified in its own self-interest. Here, Exxon is translating profit-generating research and development expenditures into an opportunity to bolster their public image.

In Hasnan's “Two Normative Theories of Business”, he points out that laissez faire should not be argued to demonstrate the vulnerability of the utilitarian’s defense of stockholder theory, for the lack of a true free market renders the point moot. Here, Exxon’s business is not only subsidized by the government and lacks competitors. There is no true market, but a captive, dependent marekt. Many consumers are unaware as to which oil companies products they are buying. There is no market for oil by the end consumer.

While Freeman says that the laws have been progressively increasing the rights to those groups that have a claim in the firm, this is the opposite when it comes to the oil industry. In fact, the government capitalizes on our dependence of oil through taxation.

While I can say that Exxon is failing to optimally balance the interest of all stakeholders, they have a fiduciary responsibility to maximize profits for shareholders-and I believe they did just that. Exxon distributed more than $35.6 billion to its shareholders through dividends and stock buy-backs throughout the year 2007.

As far as known information permits, Exxon played within the “rules of the game” - the game just needs better rules.