Classical theory
The classical theory on corporate responsibility argues that the stockholders of a company are the main concern for the managers. It argues that the managers should not be bound by any legal rules to give moral, social, or economic considerations to the workers.
The managers are not at liberty to act in ways other than those that are aimed at increasing the shareholder’s value. Basically, to act in any other way would amount to infringement of the permissible, ethical, and fiduciary responsibilities. Business, according to them, is an economic institution motivated by profit and its only responsibility to society provision of goods and services in order to maximize the profits hence increasing the share value.
This method has a high initial profit margin due to the lowered costs. The lower set of moral standards leads to unethical practices, and the employees tend to be not well motivated since they feel that the organization does not care about them.
The socioeconomic theory
The socioeconomic view, on the other hand, sees the business as an institution that is a part of the larger society and has responsibilities to the society; so it is not only interested in the maximization of profits and improvement of the value of the shareholders stock. This is where the management is concerned about the impact of its decisions on society in general. By doing this, the enterprise builds a further secure atmosphere for continuing profitability and averts increased government interference in the business activities.
This model is limited by forcing the organization to take responsibility for problems that affect the society and not the organization, misuse of the firm’s resources, and taking responsibilities for other sectors such as the government. Many objectives act to confuse the decision-making process, considering the stakeholders not present like the future generations and the mute ones like the environment is sometimes overlooked.