6a Corp Social Resp 2011

Business / Management Ethics Business / Management Ethics (Normative not descriptive)(Normative not descriptive)( p )( p )

Corporate ResponsibilityCorporate ResponsibilityWhat is the proper role of business in What is the proper role of business in What is the proper role of business in What is the proper role of business in

society?society?

Corporate ResponsibilityCorporate Responsibility

Much debate. Much debate. EgEg: Cadbury, : Cadbury, 1909;1909; Davis, Davis, 1973;1973;Carroll, Carroll, 1979, 2000; etc1979, 2000; etc

1960s activist movement questioned the singular 1960s activist movement questioned the singular economic objective of businesseconomic objective of business

AsbestosAsbestos–– AsbestosAsbestos–– Tobacco companiesTobacco companies–– DiscriminationDiscrimination

Napalm/Dow ChemicalNapalm/Dow Chemical–– Napalm/Dow ChemicalNapalm/Dow Chemical

Today managers regularly confront decisions re Today managers regularly confront decisions re hil th i i l l ti d thil th i i l l ti d tphilanthropy, pricing, employee relations, product philanthropy, pricing, employee relations, product

quality, environment, operations in countries with quality, environment, operations in countries with oppressive oppressive govtsgovts, etc, etc..–– Example: GE Example: GE Citizenship ReportCitizenship Report, 2005 stressed long term health , 2005 stressed long term health

of society and the enterpriseof society and the enterprise

CSR nomenclature & driversCSR nomenclature & drivers

Corporate social responsibilityCorporate social responsibilityC t ibilitC t ibilitCorporate responsibilityCorporate responsibilityCorporate citizenshipCorporate citizenshipCo po te go e n n eCo po te go e n n eCorporate governanceCorporate governanceQuestions driving the CSR debate:Questions driving the CSR debate:–– Is all profit legitimate?Is all profit legitimate?Is all profit legitimate?Is all profit legitimate?–– Is all profit generated within the law legitimate?Is all profit generated within the law legitimate?–– What is a fair distribution of a corp’s wealth between What is a fair distribution of a corp’s wealth between

shareholders, employees & society?shareholders, employees & society?shareholders, employees & society?shareholders, employees & society?–– Should companies put part of wealth back into the Should companies put part of wealth back into the

communities in which they operate?communities in which they operate?–– Can markets be relied upon to set fair prices (labour, products, Can markets be relied upon to set fair prices (labour, products, p p ( , p ,p p ( , p ,

resources?)resources?)–– Can governments reliably decide the public interest?Can governments reliably decide the public interest?

CSR OR CRCSR OR CRCSR OR CRCSR OR CR

http://www.darden.virginia.edu/corporhttp://www.darden.virginia.edu/corporateate--ethics/Video_Waddock_Difference_Maethics/Video_Waddock_Difference_Makers/index.htmlkers/index.html//

http://www ti com/corp/docs/csr/indexhttp://www ti com/corp/docs/csr/indexhttp://www.ti.com/corp/docs/csr/indexhttp://www.ti.com/corp/docs/csr/index.shtml?DCMP=corp_general&HQS=Not.shtml?DCMP=corp_general&HQS=NotApplicable+OT+csrApplicable+OT+csrApplicable+OT+csrApplicable+OT+csr

Corporate ResponsibilityCorporate Responsibility

Do managers have overridingDo managers have overridingDo managers have overriding Do managers have overriding ethical responsibility to serve ethical responsibility to serve interests of stockholders? Society?interests of stockholders? Society?interests of stockholders? Society?interests of stockholders? Society?

Do managers serve society’s Do managers serve society’s g yg yinterests interests byby serving the interests serving the interests of stockholders?of stockholders?

Contemporary Examples??Contemporary Examples??

CR & EthicsCR & EthicsCR & EthicsCR & EthicsEthical theory provides an overarchingEthical theory provides an overarchingEthical theory provides an overarching Ethical theory provides an overarching framework within which CR is situated.framework within which CR is situated.

CR also embraces management theory CR also embraces management theory d ti & th i l t td ti & th i l t tand practice & the social context and practice & the social context

within which business operates within which business operates (l d hi(l d hi i ti li ti l ltlt(leadership, (leadership, organisationalorganisational culture, culture, values, learning, moral development, values, learning, moral development, d i id i i ki t )ki t )decisiondecision--making, etc).making, etc).

CR: A definitionCR: A definitionCR: A definitionCR: A definition

h l i fh l i fThe voluntary assumption of The voluntary assumption of responsibilities that go beyond the responsibilities that go beyond the purely economic and legalpurely economic and legalpurely economic and legal purely economic and legal responsibilities of business.responsibilities of business.–– Consistent with earning a satisfactory levelConsistent with earning a satisfactory levelConsistent with earning a satisfactory level Consistent with earning a satisfactory level

of profit.of profit.–– Implies willingness to forgo a certain Implies willingness to forgo a certain

f f ff f fmeasure of profit for nonmeasure of profit for non--economic ends.economic ends.–– Integration of values Integration of values (integrity, honesty, (integrity, honesty,

fairness respect etc )fairness respect etc ) into policies, practices &into policies, practices &fairness, respect, etc.)fairness, respect, etc.) into policies, practices & into policies, practices & decisiondecision--making.making.

CR: A definitionCR: A definition

CSR is “a concept whereby CSR is “a concept whereby companies integrate social and companies integrate social and p gp genvironmental concerns in their environmental concerns in their business operations and in their business operations and in their ppinteraction with their interaction with their stakeholders on a voluntary stakeholders on a voluntary yybasis” (European Commission, basis” (European Commission, 2001 cited in 2001 cited in TencatiTencati, , PerriniPerrini & & ,,PogutzPogutz, 2004)., 2004).

CSR: A definitionCSR: A definitionCSR: A definitionCSR: A definition

Th C di B i f S i lTh C di B i f S i lThe Canadian Business for Social The Canadian Business for Social Responsibility defines CSR as, Responsibility defines CSR as, “ ’ it t t ti“ ’ it t t ti“a company’s commitment to operating “a company’s commitment to operating in an economically, socially and in an economically, socially and environmentally sustainable mannerenvironmentally sustainable mannerenvironmentally sustainable manner environmentally sustainable manner while recognising the interests of its while recognising the interests of its stakeholders including investorsstakeholders including investorsstakeholders, including investors, stakeholders, including investors, customers, employees, business customers, employees, business partners, local communities, the partners, local communities, the p , ,p , ,environment and society at large.” environment and society at large.”

Prominent areas of CSR todayProminent areas of CSR todayyy

Business ethicsBusiness ethicsBusiness ethicsBusiness ethicsLegal complianceLegal compliancePhilanthropy & community investmentPhilanthropy & community investmentPhilanthropy & community investmentPhilanthropy & community investmentEmployee rights and welfareEmployee rights and welfareEnvironmental managementEnvironmental managementggSustainabilitySustainabilityHuman rightsHuman rightsggAnimal rightsAnimal rightsMarket relationsMarket relationsCorruptionCorruptionCorporate governanceCorporate governance

ExampleExampleExampleExample

http://www.campbellsoupcompany.cohttp://www.campbellsoupcompany.com/csr/pdfs/Campbells 2010 Social Rem/csr/pdfs/Campbells 2010 Social Re/ /p / p _ _ _/ /p / p _ _ _sponsibility_Report.pdfsponsibility_Report.pdf

NOTE SEE ENOTE SEE E RESERVE ON MOODLERESERVE ON MOODLENOTE: SEE ENOTE: SEE E--RESERVE ON MOODLE RESERVE ON MOODLE FOR SEVERAL READINGS, INCLUDING FOR SEVERAL READINGS, INCLUDING ONES BY CARROLLONES BY CARROLLONES BY CARROLL.ONES BY CARROLL.

Corporate ResponsibilityCorporate Responsibilityp p yp p yContinuumContinuum

Classical economic

Socio-economic

Maximal socialeconomic

vieweconomic

viewsocial view

? Moral minimum ?

NB: Carroll (1979) Economic, legal, ethical & discretionary responsibilities (Non hierarchical? Evolutionary?)

3 Viewpoints on CSR3 Viewpoints on CSRWhat purpose should corporations serve?What purpose should corporations serve?

Narrow, Classical Economic View Narrow, Classical Economic View (Smith Friedman Levitt)(Smith Friedman Levitt)(Smith, Friedman, Levitt)(Smith, Friedman, Levitt)–– Max. Max. profitsprofits within the lawwithin the law–– Goods & services that society wants + job creation, not Goods & services that society wants + job creation, not

just profitsjust profitsjust profits.just profits.

BroaBroader der SocioSocio--economic View economic View (Simon, et al, Stone, Arrow, Goodpaster, Bowie)(Simon, et al, Stone, Arrow, Goodpaster, Bowie)–– Do no harm (moral minimum)Do no harm (moral minimum)–– Prevent harmPrevent harmaa–– Do what is right & fair not just $$$Do what is right & fair not just $$$

Broad Maximal View (Mulligan)Broad Maximal View (Mulligan)Broad Maximal View (Mulligan)Broad Maximal View (Mulligan)–– Do good, solve social problemsDo good, solve social problems

The Classical ViewThe Classical View: 3 key points: 3 key points

Business organisations, goals & Business organisations, goals & g gg gbehaviour are separate from othersbehaviour are separate from others

Performance criteria are economic Performance criteria are economic efficiency and growthefficiency and growth

Primary goal is profitPrimary goal is profit

Engage in purely economic activity and be judged Engage in purely economic activity and be judged in purely economic terms. Social concerns in purely economic terms. Social concerns should be left to other institutions.should be left to other institutions.

MILTON FRIEDMANMILTON FRIEDMAN1912 1912 -- 20062006

25 books25 books19 honorary degrees 19 honorary degrees y gy g••champion of capitalism champion of capitalism ••advisor to presidents advisor to presidents ••19461946--76 76 -- Univ. of Chicago Univ. of Chicago ••1976 1976 -- Nobel Prize, Economics Nobel Prize, Economics ••1988 1988 -- U.S. Medal of FreedomU.S. Medal of Freedom

Milton Friedman’s view of CSRMilton Friedman’s view of CSR: : 3 arguments in more detail3 arguments in more detail3 arguments in more detail3 arguments in more detail

1.1. Free Society ArgumentFree Society ArgumentThe doctrine of social responsibility … The doctrine of social responsibility … p yp ydoes not differ in philosophy from the does not differ in philosophy from the most explicitly collectivist doctrines … most explicitly collectivist doctrines … D f d f CSR i iD f d f CSR i iDefenders of CSR are unwitting puppets Defenders of CSR are unwitting puppets of socialism … (Friedman, 1970). of socialism … (Friedman, 1970). Capitalism is a necessary condition forCapitalism is a necessary condition forCapitalism is a necessary condition for Capitalism is a necessary condition for political freedom (Friedman, 1962:10).political freedom (Friedman, 1962:10).

Free society = free market economic system.Free society = free market economic system.

The Classical ViewThe Classical ViewSocially responsible actions lower efficiency:Socially responsible actions lower efficiency:–– reduce profit reduce profit ---- shareholders loseshareholders lose–– reduce wages reduce wages ---- employees loseemployees lose–– prices rise prices rise ---- consumers loseconsumers lose–– sales drop sales drop ---- everybody loseseverybody loses

B t l ft t liti l t tiB t l ft t liti l t tiBest left to political representativesBest left to political representatives

I l t tit &I l t tit &Imposes unequal costs among competitors & Imposes unequal costs among competitors & hidden costs to stakeholdershidden costs to stakeholders

“let the market decide” advertising, safety, “let the market decide” advertising, safety, hr, environment, etc eg sale of govt land …hr, environment, etc eg sale of govt land …


2.2. AgentAgent--principal Argumentprincipal Argumentgg p p gp p g–– Managers are agents of the owners of Managers are agents of the owners of

the corporation (stockholders)the corporation (stockholders)–– Agents are responsible to act on behalf Agents are responsible to act on behalf

of their principals, in accordance with of their principals, in accordance with their desires.their desires.

–– Corporate stockholders desire max Corporate stockholders desire max l l R Il l R Ilegal RoI.legal RoI.

–– Managers who sacrifice profits for CSR Managers who sacrifice profits for CSR t i d b l t li ft i d b l t li fnot required by law, are stealing from not required by law, are stealing from

stockholders (stealing is wrong). stockholders (stealing is wrong).


3. Taxation Argument3. Taxation Argument–– A manager who sacrifices profits for A manager who sacrifices profits for

CSR is imposing a cost on CSR is imposing a cost on k h ldk h ldstakeholders.stakeholders.

–– Imposing a cost = imposing a tax.Imposing a cost = imposing a tax.–– Imposing taxes without consent is Imposing taxes without consent is

taxing without representation, taxing without representation, contrary to democracycontrary to democracycontrary to democracy.contrary to democracy.

–– Managers are not trained in social Managers are not trained in social rere engineering/redistributionengineering/redistributionrere--engineering/redistribution.engineering/redistribution.

Milton Friedman’s view of CSRMilton Friedman’s view of CSR: :

In a free society “there isIn a free society “there is…. …. In a free society… there is In a free society… there is one and only one social one and only one social responsibility of businessresponsibility of business to useto useresponsibility of business responsibility of business –– to use to use its resources and engage in its resources and engage in activities designed to increase itsactivities designed to increase itsactivities designed to increase its activities designed to increase its profits so long as it stays within profits so long as it stays within the rules of the game which is tothe rules of the game which is tothe rules of the game, which is to the rules of the game, which is to say, engages in open and free say, engages in open and free competition without deception orcompetition without deception orcompetition without deception or competition without deception or fraud.”fraud.”

Milton Friedman’s Free SocietyMilton Friedman’s Free Societyyy

Friedman is defending a free marketFriedman is defending a free marketFriedman is defending a free market Friedman is defending a free market economic system charactersised by:economic system charactersised by:O & f titiO & f titiOpen & free competitionOpen & free competitionNumerous buyers & sellersNumerous buyers & sellersWho have perfect informationWho have perfect informationWho are all rational utility maximisersWho are all rational utility maximisersWho are all rational utility maximisersWho are all rational utility maximisersAbsence of external costs & market Absence of external costs & market regulationregulationregulation.regulation.

Milton Friedman’s Free Society: Milton Friedman’s Free Society: critiquecritiquecritiquecritique

The mandate to profit maximise ignores:The mandate to profit maximise ignores:R lit f i f t titi ( lti iR lit f i f t titi ( lti iReality of imperfect competition (resulting in Reality of imperfect competition (resulting in unequal distribution of income)unequal distribution of income)S i l i ffi i i d t i b l fS i l i ffi i i d t i b l fSocial inefficiencies due to imbalance of Social inefficiencies due to imbalance of knowledge between buyers & sellersknowledge between buyers & sellersUnUn costed externalitiescosted externalities egeg pollutionpollutionUnUn--costed externalities costed externalities egeg pollutionpollutionManufacturers create false demand Manufacturers create false demand (excessive & unsustainable consumption(excessive & unsustainable consumption(excessive & unsustainable consumption(excessive & unsustainable consumptionAdvertising is coercive restricting free Advertising is coercive restricting free consumer choiceconsumer choiceconsumer choiceconsumer choicehttp://www.theage.com.au/business/competitionhttp://www.theage.com.au/business/competition--aa--casualtycasualty--inin--beerbeer--warswars--xenophonxenophon--2011032320110323--1c5ry.html1c5ry.html

Review to DateReview to Date

Narrow Classical Economic ViewNarrow Classical Economic View•• Max shareholder value, uphold law & ethical Max shareholder value, uphold law & ethical

custom, enlightened longcustom, enlightened long--term value max.term value max.•• Friedman’s free society, agentFriedman’s free society, agent--principal and principal and

tax arguments.tax arguments.•• Critique of Friedman’s free marketCritique of Friedman’s free market•• Critique of maximising one’s selfCritique of maximising one’s self--interest: interest:

utilitarian principle, Kant, individual rights.utilitarian principle, Kant, individual rights.•• Non fiduciary responsibilities of managers (eg Non fiduciary responsibilities of managers (eg

don’t lie, cheat, steal, harm, coerce)don’t lie, cheat, steal, harm, coerce)

The Classical ViewThe Classical ViewThe Classical ViewThe Classical View

G d d i f k tG d d i f k tGrounded in free market, Grounded in free market, neoclassical economic theoryneoclassical economic theory

Adam Smith Adam Smith (1723(1723--90)90)

–– “The Wealth of Nations” (1“The Wealth of Nations” (1776)776)–– the best economic system recognises the best economic system recognises

individual self interestindividual self interestindividual self interestindividual self interest–– Role of the “invisible hand” in Role of the “invisible hand” in

coordinating self interest for commoncoordinating self interest for commoncoordinating self interest for common coordinating self interest for common goodgood

The Classical ViewThe Classical View

Appeals to utilitarianism and Appeals to utilitarianism and individual rights to freedom andindividual rights to freedom andindividual rights to freedom and individual rights to freedom and property for ethical foundationsproperty for ethical foundations

Utilitarian defenceUtilitarian defence–– if we all pursue our own business if we all pursue our own business

interests, society would be better interests, society would be better ddservedserved

–– an “invisible hand” would coordinate an “invisible hand” would coordinate individual selfindividual self interested behaviourinterested behaviourindividual selfindividual self--interested behaviour interested behaviour so that social good resultedso that social good resulted

Critique of utilitarian defenceCritique of utilitarian defence

Market failures cause harm and less Market failures cause harm and less utility:utility:utility:utility:–– External diseconomies eg pollutionExternal diseconomies eg pollution–– Not all goods and services can be Not all goods and services can be

sufficiently produced through free market sufficiently produced through free market process, eg social goods (clean air etc)process, eg social goods (clean air etc)Pursuit of self interest harm Tragedy ofPursuit of self interest harm Tragedy of–– Pursuit of self interest….harm. Tragedy of Pursuit of self interest….harm. Tragedy of the commons. Cooperation or regulation the commons. Cooperation or regulation needed needed

Imperfect competitionImperfect competitionImbalance of knowledge between buyer Imbalance of knowledge between buyer and sellerand sellerUnjust distribution of the greatest goodUnjust distribution of the greatest good

Adam Smith and CRAdam Smith and CR

Is Smith’s work misrepresented?Is Smith’s work misrepresented?The Theory of Moral SentimentsThe Theory of Moral Sentiments–– The Theory of Moral SentimentsThe Theory of Moral Sentiments

The defining ethic or virtue is not self interest, but The defining ethic or virtue is not self interest, but sympathy (compassion, justice) sympathy (compassion, justice) [the roots of morality [the roots of morality y p y ( p , j )y p y ( p , j ) [ y[ yare found in empathy, Hoffman, 1984]are found in empathy, Hoffman, 1984]The impartial (objective) spectator (shades of Kant & Rawls)The impartial (objective) spectator (shades of Kant & Rawls)

The Wealth of NationsThe Wealth of Nations–– The Wealth of NationsThe Wealth of Nationseconomic actors must exercise prudence, economic actors must exercise prudence, benevolence, restraint, respect for others, justicebenevolence, restraint, respect for others, justicebenevolence, restraint, respect for others, justicebenevolence, restraint, respect for others, justice

Can corporations be licensed to always act Can corporations be licensed to always act only in their best interests without regardonly in their best interests without regardonly in their best interests without regard only in their best interests without regard for the interests of others?for the interests of others?

Rights defence and critiqueRights defence and critique

Rights to liberty and property are Rights to liberty and property are natural and inalienable.natural and inalienable.Free market defends these rightsFree market defends these rightsgg

HoweverHoweverRights are not absolute; they areRights are not absolute; they areRights are not absolute; they are Rights are not absolute; they are limited by the rights of others EG limited by the rights of others EG OH&SOH&SOH&S.OH&S.Hierarchy of rightsHierarchy of rights

Nozick’sNozick’s libertarian view of justice …libertarian view of justice …


Classical economic

Socio-economic


vieweconomic

viewsocial view

? Moral minimum ?


SocioSocio--economic View of economic View of Corporate ResponsibilityCorporate Responsibility

Responsibility of business includes Responsibility of business includes more than profit making. more than profit making. How much more?How much more?

The Moral Minimum: The Moral Minimum: do no harmdo no harme o a ue o a u do o ado o aAffirmative duties: Affirmative duties: prevent harmprevent harmAffirmative duties:Affirmative duties: do gooddo goodAffirmative duties: Affirmative duties: do gooddo good

Simon, Powers & Gunneman (1972)Simon, Powers & Gunneman (1972)

Obligation to adhere to moral minimumObligation to adhere to moral minimum

Negative injunctionsNegative injunctionsnot causing harmnot causing harm–– not causing harmnot causing harm

Affirmative dutiesAffirmative dutiesAffirmative dutiesAffirmative duties–– prevent harmprevent harm–– promoting goodpromoting goodp g gp g g

Obligation not to cause harm involves Obligation not to cause harm involves taking active steps to preventtaking active steps to preventtaking active steps to prevent taking active steps to prevent potentially harmful activitiespotentially harmful activities

Moral minimumMoral minimumAffirmative duties vs negative Affirmative duties vs negative injunctions (prevent harm/do no harm)injunctions (prevent harm/do no harm)injunctions (prevent harm/do no harm)injunctions (prevent harm/do no harm)Example:Example:BHP Billiton’s environmental policyBHP Billiton’s environmental policyBHP Billiton s environmental policy BHP Billiton s environmental policy (2005) states that its duty is to, (2005) states that its duty is to,

“ensure it has management systems to“ensure it has management systems toensure it has management systems to ensure it has management systems to identify, control, and monitor identify, control, and monitor environmental risks arising from its environmental risks arising from its operations and to conduct research and operations and to conduct research and establish programs to conserve establish programs to conserve resources minimise waste improveresources minimise waste improveresources, minimise waste, improve resources, minimise waste, improve processes, and protect the environment.”processes, and protect the environment.”

Simon, Powers & Gunneman (1972)Simon, Powers & Gunneman (1972)

However duties of citizens are notHowever duties of citizens are notHowever duties of citizens are not However duties of citizens are not openopen--endedended

Obligation to prevent harmObligation to prevent harm–– capabilitycapability–– needneed–– proximityproximity–– last resortlast resortKew GardeKew Garden Principles n Principles

Avoidable Avoidable HHarm arm CCriteriariteria

Ought implies canOught implies can–– Car companies not responsible for driver Car companies not responsible for driver p pp p

errorerror

SP&G include not causing harm and SP&G include not causing harm and preventing harmpreventing harm

Obli ti t b ild fObli ti t b ild f–– Obligation to build safer carsObligation to build safer cars

Limited by Kew Garden principlesLimited by Kew Garden principlesLimited by Kew Garden principlesLimited by Kew Garden principles–– need, proximity, capability, last resortneed, proximity, capability, last resort

http://www.youtube.com/watch?v=http://www.youtube.com/watch?v=--_gU50mfehI_gU50mfehI (Milton Friedman)(Milton Friedman)

Reformulating the Reformulating the CClassical lassical VViewiewB i d D kB i d D kBowie and Duska Bowie and Duska (1990)(1990)

–– in addition to making a profit, in addition to making a profit, b i h th bli tib i h th bli tibusiness has three obligationsbusiness has three obligations

act in accordance with justiceact in accordance with justicecause no avoidable unjustifiable harmcause no avoidable unjustifiable harmcause no avoidable, unjustifiable harmcause no avoidable, unjustifiable harmprevent harm in certain conditionsprevent harm in certain conditions

(Ok to do good but not obliged)(Ok to do good but not obliged)(Ok to do good but not obliged)(Ok to do good but not obliged)

Bowie Bowie (1991)(1991)

–– Now argues that part of corporateNow argues that part of corporate–– Now argues that part of corporate Now argues that part of corporate social responsibility is to help solve social responsibility is to help solve social problems but all stakeholders social problems but all stakeholders ppshould have a say in how money is to should have a say in how money is to be spentbe spent

Reformulating the Classical ViewReformulating the Classical ViewReformulating the Classical ViewReformulating the Classical View

Th bli ti t t hTh bli ti t t hThe obligation not to harmThe obligation not to harm–– the middle groundthe middle groundObli i i di dObli i i di dObligations in ascending order Obligations in ascending order (Frankena)(Frankena)

–– avoid harmavoid harmavoid harmavoid harm–– prevent harmprevent harm–– remove harmremove harmremove harmremove harm–– do gooddo goodAs the difficulty increases theAs the difficulty increases theAs the difficulty increases the As the difficulty increases the obligation decreases obligation decreases


Narrow Classical Economic ViewNarrow Classical Economic View–– Max shareholder value, uphold law & ethical Max shareholder value, uphold law & ethical , p, p

custom, enlightened longcustom, enlightened long--term value max.term value max.•• Friedman’s free society argument and agentFriedman’s free society argument and agent--

principal and tax argumentprincipal and tax argumentprincipal and tax argument.principal and tax argument.

SocioSocio Economic ViewEconomic ViewSocioSocio--Economic ViewEconomic View–– Stakeholder interests should be explicitly Stakeholder interests should be explicitly

incorporated in the organization’s purposes.incorporated in the organization’s purposes.incorporated in the organization s purposes.incorporated in the organization s purposes.


Socio Economic View (cont)Socio Economic View (cont)Socio Economic View (cont)Socio Economic View (cont)-- Moral minimumMoral minimum

Do no harmDo no harm•• Do no harmDo no harm•• Prevent harm eg BHPBilliton policy on envir.Prevent harm eg BHPBilliton policy on envir.

-- Affirmative duties not openAffirmative duties not open--endedendedpp. Simon, Powers & Gunnemann. Simon, Powers & Gunnemann

. Need, proximity, capability, last resort.. Need, proximity, capability, last resort.

B i & D kB i & D k-- Bowie & DuskaBowie & Duska. Profit. Profit--making within the law but recognise nonmaking within the law but recognise non--

economic ends of rights, justice, negative and economic ends of rights, justice, negative and g , j , gg , j , gaffirmative duties, common good.affirmative duties, common good.

-- Stakeholder TheoryStakeholder Theory

Stakeholder Stakeholder TTheoryheoryyy

Business has myriad social relationshipsBusiness has myriad social relationshipsRelationships carry obligationsRelationships carry obligationsRelationships carry obligationsRelationships carry obligations–– employeesemployees–– supplierssupplierssupplierssuppliers–– consumersconsumers–– local community / societylocal community / societyy / yy / y–– investorsinvestors

Classical model: benefit stockholdersClassical model: benefit stockholdersStakeholder: benefit all who have a stake Stakeholder: benefit all who have a stake in the businessin the business

Stakeholder RolesStakeholder RolesStakeholder RolesStakeholder Roles

OwnersOwners have a financial stake in have a financial stake in the corporation and expect a the corporation and expect a return on their investment.return on their investment.EmployeesEmployees have their jobs and have their jobs and usually their livelihood at stake.usually their livelihood at stake.SuppliersSuppliers provide raw materials provide raw materials to the corporation, thus the to the corporation, thus the corporation is vital to the corporation is vital to the supplier's successsupplier's successsupplier's success.supplier's success.

Stakeholder RolesStakeholder Roles

CustomersCustomers exchange resources for the exchange resources for the d t i f th fi d id t i f th fi d iproducts or services of the firm and in products or services of the firm and in

return receive the benefits of the return receive the benefits of the products or services.products or services.products or services.products or services.Local communityLocal community grants the corporation grants the corporation the right to build facilities in their area; the right to build facilities in their area; in turn, the community benefits from in turn, the community benefits from the tax base and economic the tax base and economic contributions of the corporation.contributions of the corporation.contributions of the corporation. contributions of the corporation. ManagersManagers must look after the health of must look after the health of the corporation and carefully balance the corporation and carefully balance p yp ythe conflicting claims of all the conflicting claims of all stakeholdersstakeholders..

Stakeholder Stakeholder TTheoryheoryStakeholder Stakeholder TTheoryheory

In the stakeholder theory, the In the stakeholder theory, the y,y,function of business is the function of business is the harmonisation of the interests of harmonisation of the interests of the various stakeholders.the various stakeholders.

But how? But how?

Evan and FreemanEvan and Freeman

Both stockholders and stakeholders have Both stockholders and stakeholders have a right to demand certain actions froma right to demand certain actions froma right to demand certain actions from a right to demand certain actions from management because all have a vested management because all have a vested stake in the corporation.stake in the corporation.stake in the corporation.stake in the corporation.The law recognises duties to stakeholdersThe law recognises duties to stakeholdersUtilitarianism demands that allUtilitarianism demands that allUtilitarianism demands that all Utilitarianism demands that all stakeholders be given equal consideration stakeholders be given equal consideration and that mgt consider the consequences and that mgt consider the consequences g qg qfor all affected.for all affected.Rights theory demands equal rights for all Rights theory demands equal rights for all and that people not be used as a means and that people not be used as a means to another’s end.to another’s end.

John R. BoatrightJohn R. Boatright

Shareholders As OwnersShareholders As Owners–– Equity ArgumentEquity Argument –– Managers do not Managers do not

appear to have a special fiduciary appear to have a special fiduciary responsibility to shareholders responsibility to shareholders because the shareholders alreadybecause the shareholders alreadybecause the shareholders already because the shareholders already have builthave built--in protections that other in protections that other stakeholders do not possess.stakeholders do not possess.

Shareholders are sufficiently protected by Shareholders are sufficiently protected by the right they have to elect the board of the right they have to elect the board of directors, vote on shareholder directors, vote on shareholder ,,resolutions, etc.resolutions, etc.

Challenges to Stakeholder Challenges to Stakeholder ThThTheoryTheory

Primacy of stockholders’ interestsPrimacy of stockholders’ interestsyy

Too general and vague. Little practicalToo general and vague. Little practicalToo general and vague. Little practical Too general and vague. Little practical use to management.use to management.–– Problems identifying stakeholders and their Problems identifying stakeholders and their

interestsinterests–– How to balance those interests?How to balance those interests?

Note: Friedmanites treat stakeholders well to Note: Friedmanites treat stakeholders well to make $$; stakeholder theory, because it is the make $$; stakeholder theory, because it is the a e $$; sta e o de t eo y, because t s t ea e $$; sta e o de t eo y, because t s t eright thing to do.right thing to do.

What Wicks and Freeman sayWhat Wicks and Freeman sayWhat Wicks and Freeman sayWhat Wicks and Freeman say

http://www.darden.virginia.edu/corporatehttp://www.darden.virginia.edu/corporate--ethics/Video_Stakeholder_Responsibility/index.ethics/Video_Stakeholder_Responsibility/index.htmlhtml

http://www.darden.virginia.edu/corporatehttp://www.darden.virginia.edu/corporate--ethics/Video_Stakeholder_Theory/index.htmlethics/Video_Stakeholder_Theory/index.html

Revision of Classical TheoryRevision of Classical Theoryyy

“Business has a primary responsibility “Business has a primary responsibility to make a profit, but in doing so cannot to make a profit, but in doing so cannot resort to coercion or fraud, and must resort to coercion or fraud, and must respect the rights of all those who respect the rights of all those who have a stake in the business, treating have a stake in the business, treating them justly and fairly, compensating them justly and fairly, compensating for past injuries, doing no harm, and, for past injuries, doing no harm, and, where required, preventing harm.” where required, preventing harm.” q , p gq , p g(Bowie & Duska, 1990:42)(Bowie & Duska, 1990:42)


Classical economic

Socio-economic


vieweconomic

viewsocial view

? Moral minimum ?


Broad Maximal View of CSRBroad Maximal View of CSRBroad Maximal View of CSRBroad Maximal View of CSRObligation to help solve social problemsObligation to help solve social problems–– to “do good” or shape society.to “do good” or shape society.

A t fA t fArguments for:Arguments for:–– Corporate citizenship: Corporate citizenship: business & society interwovenbusiness & society interwoven

Duty of gratitudeDuty of gratitude–– Duty of gratitudeDuty of gratitude–– Social power (balance power with Social power (balance power with

responsibility)responsibility)p y)p y)–– Prudent stewardship of society’s resourcesPrudent stewardship of society’s resources–– Discourages Govt. regulationDiscourages Govt. regulation–– Promotes longPromotes long--term profits for businessterm profits for business–– Corrects social problems caused by businessCorrects social problems caused by business

Broad Maximal View of Broad Maximal View of CSRCSR

The largest 100 companies in the The largest 100 companies in the world have annual revenues that world have annual revenues that exceed the GDP of 50% of the exceed the GDP of 50% of the world’s nation states. world’s nation states. 359 corporations account for 40% 359 corporations account for 40% of world trade. of world trade. 10 corporations control almost 10 corporations control almost every aspect of the worldwide food every aspect of the worldwide food chainchain (M I t h L i i J &(M I t h L i i J &chain chain (McIntosh, Leipziger, Jones & (McIntosh, Leipziger, Jones & Colman (1998).Colman (1998).

Current Trends in CSRCurrent Trends in CSR

Focus on internal and external stakeholders, including Focus on internal and external stakeholders, including the community eg Nike in Pakistanthe community eg Nike in Pakistanthe community, eg Nike in Pakistanthe community, eg Nike in Pakistan

Millennium Poll on CSR interviewed 25,000 people in Millennium Poll on CSR interviewed 25,000 people in , p p, p p23 countries on 6 continents about expectations of 23 countries on 6 continents about expectations of corporations. Most thought corporations should corporations. Most thought corporations should contribute to society in addition to making a profitcontribute to society in addition to making a profitcontribute to society in addition to making a profit contribute to society in addition to making a profit and obeying lawsand obeying laws

Combine principles, processes & outcomes ‘ written Combine principles, processes & outcomes ‘ written standards and corporate ethics programsstandards and corporate ethics programs

CSR initiatives will be strategically focussed, not PRCSR initiatives will be strategically focussed, not PR

Millennium PollMillennium PollMillennium PollMillennium Poll

http://www.globescan.com/news_archhttp://www.globescan.com/news_archives/MPExecBrief.pdfives/MPExecBrief.pdf/ p/ p

Current Trends in CSR (cont.)Current Trends in CSR (cont.)Current Trends in CSR (cont.)Current Trends in CSR (cont.)Increase in voluntary and mandatory Increase in voluntary and mandatory

ti ( l t d ditti ( l t d ditreporting (annual reports and audits on reporting (annual reports and audits on CSR performance CSR performance egeg St James Ethics St James Ethics CenterCenter ReputexReputex))Center, Center, ReputexReputex).).> public expectations about corporate > public expectations about corporate leade ship in sol ing social p oblemsleade ship in sol ing social p oblemsleadership in solving social problems.leadership in solving social problems.> emphasis on the effectiveness of > emphasis on the effectiveness of

t thi i iti tit thi i iti ticorporate ethics initiatives.corporate ethics initiatives.http://www.corporatehttp://www.corporate--

ibilit / t t/ ti i tibilit / t t/ ti i tresponsibility.com.au/content/participantresponsibility.com.au/content/participant--videovideo--20082008

St James Ethics CenterSt James Ethics CenterReputexReputexReputexReputexFTSEFTSE

http://www.ethics.org.au/http://www.ethics.org.au/

http://www.reputex.com.au/http://www.reputex.com.au/

http://news.theage.com.au/breakinghttp://news.theage.com.au/breaking--newsnews--world/aussieworld/aussie--bankbank--tickingticking--newsnews world/aussieworld/aussie bankbank tickingtickingglobalglobal--corporatecorporate--boxesboxes--2011040620110406--1d4ld.html1d4ld.html

Government RegulationGovernment RegulationGovernment RegulationGovernment Regulation

oror

Self Regulation?Self Regulation?

Government InitiativesGovernment InitiativesParliamentary Joint Committee on Corporations Parliamentary Joint Committee on Corporations and Financial Services (Aust.)and Financial Services (Aust.)( )( )http://www.aph.gov.au/Senate/committee/corphttp://www.aph.gov.au/Senate/committee/corporations_ctte/corporate_responsibility/report/inorations_ctte/corporate_responsibility/report/index htmdex htmdex.htmdex.htm

ASX: all listed companies to have a Code ofASX: all listed companies to have a Code ofASX: all listed companies to have a Code of ASX: all listed companies to have a Code of Conduct and a Code of Ethics in place and on Conduct and a Code of Ethics in place and on website (2004). website (2004).

US Federal Sentencing Guidelines for US Federal Sentencing Guidelines for OrganisationsOrganisations (FSGO), 1991, 2004(FSGO), 1991, 2004O ga sat o sO ga sat o s ( SGO), 99 , 00( SGO), 99 , 00http://www.wcsr.com/downloads/pdfs/csmemo45.phttp://www.wcsr.com/downloads/pdfs/csmemo45.pdfdf

FSGO, 2005FSGO, 20051.1. Establishment of written standardsEstablishment of written standards22 Communication and training of wsCommunication and training of ws2.2. Communication and training of wsCommunication and training of ws3.3. Periodic auditing, monitoring & enforcement Periodic auditing, monitoring & enforcement

and provision of anonymous reportingand provision of anonymous reportingand provision of anonymous reporting and provision of anonymous reporting mechanismsmechanisms

4.4. Enforcement through incentives & disciplineEnforcement through incentives & discipline4.4. Enforcement through incentives & disciplineEnforcement through incentives & discipline5.5. Appropriate and timely responses to Appropriate and timely responses to

violationsviolations6.6. Oversight by senior managementOversight by senior management7.7. Due care in delegating discretional authorityDue care in delegating discretional authority7.7. Due care in delegating discretional authorityDue care in delegating discretional authority

Government RegulationGovernment RegulationGovernment RegulationGovernment Regulation

Hand of government” approach.Hand of government” approach.

Society’s interests best served by Society’s interests best served by legal regulation of business rather legal regulation of business rather g gg gthan the free market (“invisible than the free market (“invisible hand”).hand”).

Milton FriedmanMilton Friedman–– government to enforce the moral government to enforce the moral

minimumminimum

Advantages of Govt RegulationAdvantages of Govt RegulationAdvantages of Govt. RegulationAdvantages of Govt. Regulation

Protects socially responsible Protects socially responsible corporations from competitive corporations from competitive disadvantagesdisadvantages

Forces a moral minimum on Forces a moral minimum on indifferent corporationsindifferent corporations

Reflects generally accepted moral Reflects generally accepted moral g y pg y pstandards and therefore in tune standards and therefore in tune with the greater marketwith the greater market

Disadvantages of Govt. Disadvantages of Govt. ggRegulationRegulation

Expensive to implement and enforceExpensive to implement and enforceReduces efficiency, costs must be Reduces efficiency, costs must be

ddpassed onpassed onCumbersome and contradictoryCumbersome and contradictoryI t f ith f d f i tI t f ith f d f i tInterfere with freedom of private Interfere with freedom of private enterpriseenterpriseEncourage minimalistic approach toEncourage minimalistic approach toEncourage minimalistic approach to Encourage minimalistic approach to social responsibility social responsibility –– “if it’s not illegal, it’s okay”“if it’s not illegal, it’s okay”

Difficult to draft and avoid biasDifficult to draft and avoid bias

Self RegulationSelf RegulationSelf RegulationSelf Regulation

Arguments in supportArguments in support–– Principle of autonomy (linked to Principle of autonomy (linked to p y (p y (

responsibilityresponsibility–– Knowledge and experience of rule makers Knowledge and experience of rule makers

within industrywithin industrywithin industrywithin industry–– Proximity to the market allows rapid / Proximity to the market allows rapid /

flexible approachflexible approachpppp–– “Ownership of rules” has positive impact “Ownership of rules” has positive impact

on attitudes and complianceon attitudes and compliance–– Cheaper for taxpayerCheaper for taxpayer

Self RegulationSelf RegulationSelf RegulationSelf Regulation

Arguments againstArguments against–– Standards may be too lowStandards may be too lowStandards may be too lowStandards may be too low–– May exclude new market entrantsMay exclude new market entrants–– Identity of wrongdoers may beIdentity of wrongdoers may beIdentity of wrongdoers may be Identity of wrongdoers may be

protectedprotected–– Punishment may be lenientPunishment may be lenientPunishment may be lenientPunishment may be lenient

Code of EthicsCode of Ethics

Advantages:Advantages:–– Provide stable, longProvide stable, long--term guides to term guides to

decisiondecision--makingmakingThrough peer pressure motivate complianceThrough peer pressure motivate compliance–– Through peer pressure motivate complianceThrough peer pressure motivate compliance

–– Provide guidance in ambiguous situationsProvide guidance in ambiguous situations–– Protect employees from employersProtect employees from employersProtect employees from employers Protect employees from employers

“obliging” to act unethically“obliging” to act unethically–– Clarify and specify what corporate social Clarify and specify what corporate social

responsibility involvesresponsibility involves–– Limit the need for government regulationLimit the need for government regulation

M j C iti iM j C iti iMajor CriticismMajor Criticism–– Cannot be adequately enforcedCannot be adequately enforced

Documents

6a Corp Social Resp 2011