CORPORATE SOCIAL RESPONSIBILITY (CSR) AND ETHICS

Chapter 15 Lecture 1

Definitions and RelationshipsCorporate social responsibility (CSR) is the process by which businesses negotiate their role in society In the business world, ethics is the study of morally appropriate behaviors and decisions, examining what "should be doneAlthough the two are linked in most firms, CSR activities are no guarantee of ethical behavior

Recent Evidence of CSR InterestAn Internet search turns up 15,000 plus response to corporate citizenshipJournals increasingly rate businesses (and NGOs) on socially responsive criteria:Best place to workMost admiredBest (and worst) corporate reputation

Reasons for CSR ActivitiesCSR activities are important to and even expected by the publicAnd they are easily monitored worldwideCSR activities help organizations hire and retain the people they wantCSR activities contribute to business performance

Maximize firms profits to the exclusion of all elseBalance profits and social objectivesDo what it takes to make a profit; skirt the law; fly below social radarFight social responsibility initiativesComply; do what is legally requiredIntegrate social objectives and business goalsLead the industry and other businesses with best practicesDo more than required; e.g. engage in philanthropic givingArticulate social value objectivesCorporate Social Responsibility Continuum

CSR are Grounded by Opposing Objectives (Maximize Profits to Balance Profits with Social Responsibility) and so Activities Range WidelyDo what it takes to make a profit; skirt the law; fly below social radarFight CSR initiativesComply with legal requirementsDo more than legally required, e.g., philanthropyArticulate social (CSR) objectivesIntegrate social objectives and business goalsLead the industry on social objectives

Businesses CSR ActivitiesPhilanthropygive money or time or in kind to charityIntegrative philanthropyselect beneficiaries aligned with company interestsPhilanthropy will not enhance corporate reputation if a company fails to live up to its philanthropic image or if consumers perceive philanthropy to be manipulative

Integrate CSR GloballyIncorporate values to make it part of an articulated belief systemAct worldwide on those values Cause-related marketingCause-based cross sector partnershipsEngage with stakeholdersPrimary stakeholdersSecondary stakeholders

Business Ethics Development The cultural context influences organizational ethicsTop managers also influence ethicsThe combined influence of culture and top management influence organizational ethics and ethical behaviors

The Evolving Context for EthicsFrom domestic where ethics are shared To international where ethics are not shared when companies:Make assumptions that ethics are the sameEthical absolutismthey adapt to us Ethical relativismwe adapt to them To global which requires an integrative approach to ethics

Emergence of a Global Business Ethic Growing sense that responsibility for righting social wrongs belongs to all organizations Growing business need for integrative mechanisms such as ethicsEthics reduce operating uncertaintiesVoluntary guidelines avoid government impositionsEthical conduct is needed in an increasingly interdependent worldeveryone in the same gameCompanies wish to avoid problems and/or be good public citizens

Ways Companies Integrate EthicsTop management commitment in word and deedCompany codes of ethicsSupply chain codesDevelop, monitor, enforce ethical behaviorSeek external assistance

External Assistance with EthicsIndustry or professional codesCertification programs, e.g., ISO 9000Adopt/follow global codesCaux Round Table Principles

Reasons for Businesses to Engage in Development of a Global Code of Business EthicsCreate the same opportunity for all businesses if there are common rulesLevel the playing fieldThey are needed in an interconnected worldThey reduce operating uncertaintiesIf businesses dont collaborate, they may not like what others develop

Four Challenges to a Global EthicGlobal rules emerge from negotiations and will reflect values of the strongGlobal rules may be viewed as an end rather than a beginningRules can depress innovation and creativityRules are static but globalization is dynamic

Companies can engage in CSR activities even while they are acting in unethical ways. For example, Enron was a champion of community involvement, but used off-balance-sheet partnerships to bilk investors and eventually ruin the company. Similarly Parmalat helped many Parma people and gave $2 million to restore the sixteenth-century Correggio frescoes at Parma Cathedral. But he diverted hundreds of millions from publicly held Parmalat to family owned companies like soccer team Parma AC and Parmatour.

Companies can say one thing and do another.

Bullet 1 from Fleming, John E. (2004). Corporate citizenship revisited. AOM Newsletter, 35(1): 4.

A 2002 U.S. poll conducted by the Wall Street Journal/NBC showed public esteem for business leaders dropped following reports that companies like Enron, Andersen, and others. Fifty seven percent of respondents said corporate standards and values dropped in the past 20 years compared with 38% who said they were the same. This compares to 1998 when respondents reports were 5342%. They proportionately said government should regulate business, and that has occurred, for example Sarbanes-Oxley. From: Harwood, John. (2002, April 11). Publics esteem for business falls in wake of Enron scandal. WSJ, D5. Corporate scandals in Japan (former Mitsubishi Motors executive arrested on suspicion of professional negligence re: defective truck parts); Citibank turfed from Japan for irregularities.Corporate scandals also in Europe: ABB and Barnevik pay; hold kickbacks to suppliers; also make this a worldwide phenomenon.On the left side of the continuum we see that the objective is to maximize firms (or individual) gains to the exclusion of all else (an example is Tyco whose CEO and CFO faced trail for larcenyconverting $600 m of company assets to their own use); on the right is objective to balance social (CSR) and profit objectives.

These may be activities youll see in your firms.Integrative philanthropyAvon Products Inc. The company for women" donates funds to breast cancer research. In Seattle, FareStart partners with Consolidated Restaurants; Pharma companies align with Operation Smile, AIDs donations.Incorporate values in belief statements: McDonald's: We believe that being a good corporate citizen means treating people with fairness and integrity, sharing our success with the communities in which we do business, and being a leader on issues that affect customers (McDonald's Corporation, 1992). Act on values: Starbucks put resources into integrating values.Primary stakeholders are internal to the company such as owners, employees, labor unions, customers and suppliers (Clarkson, 1995). Secondary stakeholders operate external to the firm; they could be nongovernmental organizations, social activists, community groups, and governmental organizations. REI definition of social responsibility: Achieving commercial success in ways that honor ethical values and respect people, communities, and the natural environment includes ethics, community investments, corporate governance, environmental health and safety practices, sustainability, sourcing practices. Matt Hyde, Sr VP of Merchandizing and Logistics at REI said the only way we can be CSR is if we pursue commercial successits a given that you have to make money (November 1, 2004).

If national practice is bribery, then most companies in that nation will use bribery.If a top manager is unethical, then he/she sets a lead that others follow.When managers behave unethically, employees can be demoralized, lose faith in the organization, and even leave their jobs. Others might follow-the-leader themselves and engage in unethical behaviors. High demands for performance and profitability led Enron employees first to cut ethical corners and finally to break laws as well. According to one Enron controller, the logic was as follows: "If your boss was [fudging] and you have never worked anywhere else, you just assume that everybody fudges earnings. Once you get there and you realized how it was, do you stand up and lose your job? It was scary. It was easy to get into 'Well, everybody else is doing it, so maybe it isn't so bad.'"

Most firms are developed within a nation, borrowing their ethical practices from them.When they go international, they face new ethical challenges.NIKE Inc. was "founded on a handshake" with implicit belief that "business with all of our partners [would be] based on trust, teamwork, honesty and mutual respect. We expect all of our business partners to operate on the same principles." Nike discovered that their overseas subcontractors were not treating workers with respect, and this suggests that Nike's view of these principles and what they meant did not result in desired subcontractor behavior. Create a cohesive ethical program that meets multiple and sometimes conflicting demands.

Fundamental honesty and adherence to the law.

Product safety and quality, workplace health and safety precautions Conflicts of interest Employment practices Fair practices in selling and marketing products or services Financial reporting Supplier relationships Pricing, billing, and contracting Trading in securities and/or use of insider information Payments to obtain business Acquiring and using information about others Security and political activities Environmental protection Intellectual property or use of proprietary information (Business Roundtable, 1988).

Accountants have a professional code of ethics that companies rely on. a. Maintaining or creating the opportunity for business activities. b. All firms should be operating according to the same principles; this produces the "level playing field" upon which many organizational leaders prefer to play. c. Ethical codes are needed and are possible in a world that is interdependent on many other dimensions of business activities. d. They reduce operating uncertainties and, e. Growing public interest in a global code of ethics suggests that if businesses don't develop such codes, they will be developed by other bodies that may be unfavorable to business interests.

Global rules are likely to emerge from a negotiation process; they are unlikely to reflect values and habits consistent for all cultures. To the extent that these rules are developed by firms from the Westernized countries, they may not incorporate concerns for much of the world. Second, global ethics may be viewed as an end point rather than a beginning point for developing global ethics. Organizations may hide behind global codes, claiming that the absence of rules means that all behaviors are acceptable as conditions change. Organizations may/will find loopholes then use the rules in defense.

A global code of ethics also may serve to depress innovation, since some will hesitate to act in the absence of clear guidelines. However, a static set of guidelines is unlikely to keep pace with globalization.