When Biggo Manufacturing (a public listed company) needed to build an extension to its factory, it obtained planning permission to build it on an adjacent field. The local government authority was keen to attract the new jobs that would go with the expansion and so granted the permission despite the objections of a number of residents, who were concerned that the new factory extension would mean the loss of a children’s play area.
When the board of Biggo met after the building approval had been given, the chief executive read out a letter from Albert Doo, leader of the local government authority, saying that although permission to build had been given, the company should consider making a sizeable contribution towards creating a new children’s play area in a nearby location. Mr Doo said that Biggo ‘should recognise its social responsibility’. He said that the company should consider itself a citizen of society and should, accordingly, ‘recognise its responsibilities as well as its legal rights’.
One of Biggo’s directors, Robert Tens, said he thought the request was entirely reasonable given the displacement of the play area. He also said that they could use the donation strategically to help cultivate the company’s reputation locally to help in future recruitment. It might also, he said, help to reduce resistance to any future expansion the company might need to make.
Margaret Heggs, in contrast, argued that the company should not make the donation as it was likely that company profits would be low in the current year. She said that the acquisition of the land and the gaining of planning permission were done through the normal legal channels and so the company had no further contractual or ethical duties to the local government, nor to the local community. She said that Biggo provided local employment and produced excellent products and so it was unreasonable for the request for a donation to have been made. ‘This board is accountable to the shareholders of Biggo and not to the local community or the local government authority’, she said.
Required:
(a) Explain the meaning of ‘rights’ and ‘responsibilities’ in the context of Biggo and describe how these terms are interpreted at the two ends of the Gray, Owen & Adams ‘continuum’. (10 marks)
(b) Justify, using evidence from the case, which of Gray, Owen & Adams’s positions are best described by the comments made by Robert Tens and also Margaret Heggs. (6 marks)
(c) Define ‘social responsibility’ as used by Albert Doo. Contrast how short and long-term shareholder interest perspectives may affect Biggo’s attitude to the requested contribution for the children’s play area. (9 marks)