Chapter 6
Theories of Social Responsibility,
The Corporate Social Audit ,
Corporate Sustainability
Theories of Social Responsibility
• Four Theories for Social Responsibility:
1. Maximizing Profits
2. Moral Minimum
3. Stakeholder Interest
4. Corporate Citizenship
1. Maximizing Profits
• A theory of social responsibility that says a
corporation has a duty to take actions that
maximize profits for shareholders.
• The interests of other stakeholder are not
important.
2. Moral Minimum
• A theory of social responsibility that says a
corporation’s duty is to make a profit while
avoiding harm to others.
• As long as business avoids or corrects the social
injury, it has met its duty of social responsibility.
– e.g., Occupational safety laws.
– e.g., Consumer protection laws for product safety
3. Stakeholder Interest
• A theory of social responsibility that says a
corporation must consider the interests of all
stakeholders, including stockholders, employees,
customers, suppliers, creditors, and local
community.
• This theory was criticized because it is difficult to
harmonize the conflicting interests of
stakeholders.
4. Corporate Citizenship
• A theory of responsibility that says a business
has a responsibility to do good and
helping to solve social problems.
• A major criticism of this theory is that the duty
of a corporation to “do good” can not be
extended outside certain limits.
Theories of Social Responsibility – Summary
Theory
Social Responsibility
Maximizing profits To maximize profits for stockholders.
Moral minimum
To avoid causing harm and to compensate
for harm caused.
Stakeholder
interest
To consider the interests of all
stakeholders, including stockholders,
employees,
customers,
suppliers,
creditors, and local community.
Corporate
citizenship
To do good and solve social problems.
The Corporate Social Audit
• Definition of Social Auditing (SA):
• SA: is a formal review used to measure the impact
that a corporation has on its clients, staff and society
as a whole.
• The purpose of a social responsibility audit is to
ensure that the company is doing all it can to support
non-tangible gains such as employee satisfaction,
community support and customer loyalty.
What is Social Auditing ?
 SA can enhance an organization’s capacity to:
• Evaluate their impact on stakeholders.
• Determine how well they are living up to the
values they promote.
• Improve their strategic planning process by
identifying potential problems before they come
up; and
• Increase their accountability to the groups they
serve and depend on.
Reasons to conduct a SA:
•
•
•
•
•
•
Know what is happening.
Understand what people think and want.
Tell people what you are achieving.
Strengthen loyalty / commitment.
Enhance decision-making.
Improve overall performance.
The Corporate Social Audit :
• A social audit looks at factors such as :
1. company’s record of charitable giving.
2. volunteer activity.
3. energy use.
4. work environment.
5. Worker safety.
6. Consumer protection.
 Social audits are optional--companies can choose
whether to perform them and whether to release the
results publicly or only use them internally.
The Corporate Social Audit :
• Corporate audits should be extended to include
the moral health of the corporation.
• Corporations that conduct social audits will be
more suitable to prevent unethical and illegal
behaviors by managers, employees, and
representatives.
The Corporate Social Audit (continued)
Procedures for conducting a social audit:
1. An independent outside firm should be hired
to conduct the audit.
– This will ensure autonomy and objectivity.
2. The company’s staff should cooperate fully
with the auditing firm while the audit is being
conducted.
The Corporate Social Audit (continued)
Procedures for conducting the audit (continued):
3. The auditing firm should report its findings
directly to the company’s board of directors.
4. The board of directors should determine how
the company can:
– Better meet its duty of social responsibility; and
– Use the audit to implement a program to correct
any insufficiency it finds.
Corporate Sustainability
• Corporate sustainability : involves meeting the
needs of today’s stakeholders in a manner that
protects the environment and resources needed
for future generations, directed at improving a
company’s Triple Bottom line (TBL).
• The TBL is an accounting framework that
includes three dimensions of performance:
social, environmental and economic.
Corporate Sustainability
The Triple Bottom Line (TBL) is made up of:
"Social, Economic and Environmental"
"People, Profit, Planet "
Triple Bottom Line (TBL)
What is triple bottom line reporting?
TBL reporting : “ is a framework for measuring and
reporting corporate performance against economic,
social and environmental factors”
• A move from one dimensional economic reporting to
three dimensional economic, social and
environmental reporting.
Economic factors:




Generally accounting principles.
Customers.
Suppliers.
Employees.
Social factors:



Bribery and corruption.
Child labor.
Training and diversity.
Environmental factors:



Energy.
Water.
Emissions, and waste.
Triple Bottom Line (TBL)
TBL reporting enables organizations to:
1. Measure and manage their financial and nonfinancial performance.
2.
Have their performance and impacts
demonstrated independently.
3.
Communicate effectively with consumers,
governments, investors, employees, other
stakeholders and supervisory groups.
How is TBL reporting achieved?
• TBL reporting achieved through the application of what is
called the Global Reporting Initiative “GRI’.
• GRI is “a common framework for sustainability reporting”
https://www.globalreporting.org/Pages/default.aspx
• Started in 1997 by the combination for Environmentally
Responsible Economies and the United Nations.
Global Reporting Initiative “GRI”
• GRI became independent in 2002, and is an official
collaborating center of the United Nations
Environment Programme (UNEP) and works in
cooperation with UN Secretary-General.