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Lecture 5 & 6 CSR

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Lecture 5 & 6
Corporate Social Responsibility (CSR)
Personal & Professional Ethics
McGraw-Hill/Irwin
Adapted Version
Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.
•
After exploring this lecture, you will be able to:
1. Define corporate social responsibility (CSR)
2.
3.
4.
5.
6.
7.
Distinguish key components of the term responsibility.
Describe & evaluate the economic model of CSR
Describe & evaluate the stakeholder model of CSR
Describe & evaluate the integrative model of CSR
Role of reputation management as motivation behind CSR
Evaluate the claims that CSR is “good” for business
2
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Corporation
A corporation is an organization created by law:
-a legal “person,”
-has legal rights and duties that are primarily determined by
the laws of the state
-Forming a corporation has several benefits, including:
o limiting legal liability,
o protecting personal assets,
o providing tax advantages,
o and ensuring organizational continuation beyond the
life or involvement of individuals.
3
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Benefit Corporation
• Benefit corporation is a legal entity in US with legal rights and
duties created to achieve the general benefits of any
corporation
• Benefit corporations are not nonprofits; they are for-profit
businesses that create value for their stockholders as a byproduct of creating values for a wide range of other
stakeholders.
• Benefit corporations differ from traditional corporations in that
their boards and managers are given the legal authority to
pursue social and environmental goals in addition to the
financial goals that corporations generally pursue.
4
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Benefit Corporation
• Benefit corporations are free to make social and
environmental goals part of the very mission and identity
of the corporation and therefore make the boards and
managers accountable to wider social goals.
• The profit sought by stockholders thus becomes one
among other equally legitimate goals sought by a range
of corporate stakeholders.
• Examples: King Arthur Flour, Patagonia, Kickstarter,
Seventh Generation, and Plum Organics
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Case Study: Walmart’s Ethics
o Although controversial, Walmart does have some claim to
being regarded as a socially responsible company.
o In addition to huge financial success, & consistently
being among the “most admired” companies in the
world the company also:
o Brings consumers the benefits of low prices
o Gives jobs to about 2 million employees
o Gives business to suppliers of products
o Gives millions of dollars to charity each year
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Case Study: Walmart’s Ethics
o On the other hand:
o Walmart faced serious criticism over its treatment of
workers
o Employees required to work overtime without pay
o And in 2012, the New York Times exposed a pattern of
bribery being conducted by Walmart in Mexico.
o Do Walmart’s ‘socially responsible’ activities do anything
to compensate for other unethical and/or illegal behavior?
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Corporate Social Responsibility (CSR)
Actions of organizations impact positively or negatively:
• Customers
• Employers
• Suppliers
• Community
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Corporate Social Responsibility (CSR)
What Responsibility Does Business Have?
At a minimum, it is indisputable that business has a social
responsibility to obey the law.
• Economists might also say that business has a social
responsibility to produce the goods and services that
society demands.
• If a firm fails to meet society’s interests and demands, it
will simply fail and go out of business.
We can say that the primary question of CSR is the extent to
which business has social responsibilities that go beyond
producing goods and services within the law.
9
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What is CSR?
•
CSR refers to the responsibilities that a business has to the
society in which it operates
•
From an economic perspective: A business exists to
produce goods & services demanded by society & by
engaging in this activity, the business creates jobs &
wealth that benefit society
•
The law has created a form of business called corporations,
which limits the liability of individuals for the risks involved
in these activities.
10
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CSR Equation
• CSR is the sum of:
• Economic Responsibilities (make a profit)
• Legal Responsibilities (obey the law)
• Ethical Responsibilities (be ethical)
• Philanthropic Responsibilities (good
corporate citizen)
11
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•
After exploring this lecture, you will be able to:
1. Define corporate social responsibility (CSR)
2.
3.
4.
5.
6.
7.
Distinguish key components of the term responsibility.
Describe & evaluate the economic model of CSR
Describe & evaluate the stakeholder model of CSR
Describe & evaluate the integrative model of CSR
Role of reputation management as motivation behind CSR
Evaluate the claims that CSR is “good” for business
12
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Different meanings of the word responsible and responsibility are
used in several different ways:
• Reliable or trustworthy
• Something as a cause for an event or action.
• A third sense involves attributing liability or accountability for
some event or action creating a responsibility to make things
right again.
o For example, that a business is responsible for a polluted river is not
only to say that the business caused the pollution but that the business
is at fault for it and should be held accountable.
•
Laws regarding product safety and liability involve many of
these meanings of being responsible.
o For example, when a consumer is injured, a first question is to ask if
the product was responsible for the injury, in the sense of having
caused the injury.
13
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Responsibility as accountability that is at the heart of
CSR. Corporate social responsibility refers to those
actions for which a business can be held accountable.
1.
Responsibilities as those things that we ought, or
should, do even if we would rather not.
2.
Responsibilities bind, or compel, or constrain, or
require us to act in certain ways.
3.
Expected to act in order to fulfill our
responsibilities; and we will be held accountable
if we do not.
4.
To talk about corporate social responsibility is to
be concerned with society’s interests that should
restrict or bind business’ behavior.
5.
Social responsibility is what a business should or
ought to do for the sake of society, even if this
comes with an economic cost.
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Philosophers often distinguish three different levels of
responsibilities in this sense on a scale from more to less
demanding or binding:
1.The most demanding responsibility is the responsibility not to cause
harm to others: often called duty or obligation, obliges us in the strictest
sense. For example, a business ought not to sell a product that causes
harm to consumers, even if there would be a profit in doing so.
2.The second, less binding, responsibility is to prevent harm even in
those cases where one is not the cause. These are so-called good
Samaritan
3.Finally, there might be responsibilities to do good, such as
volunteering and charitable work.
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Philosophers often distinguish three different levels of
ethical responsibilities on a scale from less to more
obligatory.
Do good
• Volunteering
• Sponsoring a
charity event
Prevent harm
• Good
Samaritan
• Use
renewable
energy
Don’t cause
harm to others
• A duty or an
obligation
• Enforced by
legal
punishment
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Is there a duty not to cause harm?
1.The strongest sense of responsibility is the duty not
to cause harm. Even when not explicitly prohibited by
law, ethics would demand that we not cause avoidable
harm.
2.If a business causes harm to someone and, if that
harm could have been avoided by exercising due care
or proper planning, then both the law and ethics would
say that business should be held liable for violating its
responsibilities.
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Is there a duty not to cause harm?
3.In practice, this ethical requirement is the type of
responsibility established by the precedents of tort law.
When it is discovered that a product causes harm,
then business can appropriately be prevented from
marketing that product and can be held liable for
harms caused by it.
For example: Businesses are restricted in
marketing products that have been proven to cause
cancer and other serious medical harms.
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Is there a responsibility to prevent harm?
1.There are other cases in which a business is
not causing harm, but could easily prevent harm
from occurring.
2.A more inclusive understanding of corporate
social responsibility would hold that business
has a responsibility to prevent harm
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Is there a responsibility to prevent harm?
Example: Merck’s drug, Mectizan, prevents river blindness, a disease
prevalent in tropical nations – infecting between 40 and 100 million people
annually. A single tablet of Mectizan administered once a year can relieve the
symptoms and prevent the disease from progressing. Mectizan would not be
a very profitable drug to bring to market considering the low demand and the
target audience being among the poorest people living in the poorest regions
of Africa, Asia, Central America and South America. However, in 1987, Merck
started a program to provide Mectizan free of charge, forever. Merck’s
actions were explained in part of its corporate identity statement: “We are in
the business of preserving and improving human life.”
Clearly, Merck was not responsible for causing river blindness, thus,
according to the standard of CSR, they had no social responsibility, but their
executives saw this issue differently. They felt that they did have a social
responsibility to prevent a disease easily controlled by their patented drug.
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Is there a responsibility to do good?
1.Business has a social responsibility to do good
things and to make society a better place.
2.Corporate philanthropy would be the most obvious
case
3.Corporate giving programs to support community
projects in the arts, education, and culture are clear
examples. Some corporations have a charitable
foundation or office that deals with such philanthropic
programs.
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Is there a responsibility to do good?
4.Some argue that, like all cases of charity, this is
something that deserves praise and admiration; but it
is not something that every business ought to do.
5.Others argue that business does have an
obligation to support good causes and to “give back”
to the community, as a sense of gratitude and
thankfulness – something less binding than a legal or
contractual obligation, but more than a simple act of
charity.
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•
After exploring this lecture, you will be able to:
1. Define corporate social responsibility (CSR)
2.
3.
4.
5.
6.
7.
Distinguish key components of the term responsibility.
Describe & evaluate the economic model of CSR
Describe & evaluate the stakeholder model of CSR
Describe & evaluate the integrative model of CSR
Role of reputation management as motivation behind CSR
Evaluate the claims that CSR is “good” for business
23
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We now distinguish only THREE models: the “Economic
Model” which corresponds to the Friedman, free-market,
“dominant model”, the “Stakeholder model” which replaces
the former “social web model” and now more explicitly
focuses on stakeholder theory, and the “Integrative model,”
which has been re-worked to emphasize benefit
corporations.
24
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There are competing understandings of corporate social
responsibility.
The narrow economic model of CSR directs managers to
maximize profit and shareholder wealth within legal limits.
The stakeholder model asserts that neither a business nor
the employees are exempt from ordinary ethical
responsibilities.
The integrative model of CSR says that part of the
managerial responsibility to shareholders is to serve the
social good.
25
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Figure 5.1
26
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• The general definition of the term corporate social
responsibility (CSR) is the ethical responsibilities a
business has to the society in which it operates.
• From an economic perspective, a business exists to
benefit society by producing goods and services and
creating jobs and wealth that provide further social
benefits.
• The law created a form of business called a
corporation, which promotes economic ends by
limiting the liability of individuals for the risks
involved in these activities.
27
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•
The economic model of CSR holds that businesses’ sole
social responsibility is to fulfill the economic functions
they were designed to serve.
Freeman refers to is as “managerial capitalism.”
•
Profit is an indication that business is efficiently &
successfully producing the goods & services that society
demands
•
This model DENIES that business has any SR beyond
the economic goals for which it was created
28
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• Places shareholders at the center of the corporation.
– Managers have a primary responsibility to pursue
profit within the law.
• Corporations are expected to obey legal mandates.
• Business has no social responsibilities beyond the
economic and legal.
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• Places shareholders at the center of the corporation.
– Managers have a primary responsibility to pursue
profit within the law.
• Corporations are expected to obey legal mandates.
• Business has no social responsibilities beyond the
economic and legal.
30
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Profit-Based Social Responsibility: Milton
Friedman’s 1970 New York Times article “The Social
Responsibility of Business Is to Increase Its Profits” is
perhaps best known as an argument for this economic
model, or profit-based, social responsibility of
business.
1. Friedman does not ignore ethical responsibility in
his analysis; he suggests that decision makers are
fulfilling their responsibility if they follow their firm’s selfinterest in pursuing profit.
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Profit-Based Social Responsibility:
2. Friedman explains that a corporate executive has a
responsibility to conduct business in accordance with
his/her employer’s desires, which generally will be to
make as much money as possible while conforming to
the basic rules of society, both those embodied in law
and those embodied in ethical custom.
32
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•
It has its roots in the utilitarian tradition & in
neoclassical economics
◦ Primary SR of business: Pursue maximum profits for
shareholders
◦ By pursuing profits, managers will allocate resources to
their most efficient uses
33
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•
It has its roots in the utilitarian tradition and in
neoclassical economics
◦ Consumers who most value a resource will be willing to
pay the most for it;
◦ so profit is the measure of optimal allocation of resources
◦ The pursuit of profit will continuously work towards the
optimal satisfaction of consumer demand: Optimal social
good (maximizing overall good)
34
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• Within this model, there is room to pursue social
responsibilities.
• Business is free to contribute as philanthropy.
– It builds goodwill and/or a good reputation.
– Some anonymous contributions are done because it is the right
thing.
• The economic model holds that philanthropy done for
reputational reasons is ethically responsible.
35
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There are also cases in which business contributes to
social causes without seeking any reputational benefits.
1. Some firms contribute to charity anonymously.
2. Some support causes that have little or no business or
financial payoff as a matter of giving back to their
communities.
3. One may contend that corporate support for these
social causes is done imply because it is the good and
right thing to do.
4. Others would suggest that the business has
concluded that the society in which the firm does
business is a stronger or better one if this particular
activity exists.
36
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Situations where a business supports a social
cause for the purpose of receiving a business
benefit in return are not much different from the
economic view of CSR.
1. In these cases, a business manager exercises
managerial discretion in judging the social
contribution will have economic benefits.
2. There is a great deal of overlap between decision
makers who engage in the philanthropic model for
reputational reasons and those who follow the
economic view of business’ social responsibilities.
37
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•
After exploring this lecture, you will be able to:
1. Define corporate social responsibility (CSR)
2.
3.
4.
5.
6.
7.
Distinguish key components of the term responsibility.
Describe & evaluate the economic model of CSR
Describe & evaluate the stakeholder model of CSR
Describe & evaluate the integrative model of CSR
Role of reputation management as motivation behind CSR
Evaluate the claims that CSR is “good” for business.
38
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STAKEHOLDER MODEL OF CSR
Stakeholder model
of CSR
Businesses exist
within a web of
social and ethical
relationships and
create value for a
range of
stakeholders
39
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STAKEHOLDER MODEL OF CSR
Philosopher Norman Bowie has defended one
version of CSR that would fall within this social
web model.
1. Bowie argues that beyond the economic view’s
duty to obey the law business has an equally
important ethical duty to respect human rights.
2. Respecting human rights is the “moral minimum”
that we expect of every person whether they are
acting as individuals or within corporate institutions.
40
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STAKEHOLDER MODEL OF CSR
3. Bowie identifies his approach as a “Kantian” theory of
business ethics. He begins with the distinction between
the ethical imperatives to cause no harm to prevent
harm and to do good.
a. People have a strong ethical duty to cause no
harm, and only a prima facie duty to prevent harm or
to do good.
b. The obligation to cause no harm, in Bowie’s view,
overrides other ethical considerations.
4. Bowie accepts the economic view that managers are
the agents of stockholder-owners and thus they also
have a duty to further the interests of stockholders.
41
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STAKEHOLDER MODEL OF CSR
5. According to Bowie, as long as managers comply
with the “moral minimum” and cause no harm, they
have a responsibility to maximize profits.
6. Bowie would argue that business has a social
responsibility to respect the rights of its employees,
even when not specified or required by law.
7. But the contractual duty that managers have to
stockholder-owners over-rides the responsibility to
prevent harm or to do (philanthropic) good.
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STAKEHOLDER MODEL OF CSR
Stakeholder Theory is perhaps the most influential
version of CSR that would fall within the social
web model.
1. Stakeholder theory begins with the recognition that
every business decision affects a wide variety of
people benefiting some and imposing costs on others.
2. Business decisions produce far-ranging
consequences to a wide variety of people. Every
decision involves the imposition of costs, in the sense
that every decision involves opportunities forgone,
choices given up.
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STAKEHOLDER MODEL OF CSR
3. Stakeholder theory recognizes that every business
decision imposes costs on someone and mandates
that those costs be acknowledged.
4. Any theory of corporate social responsibility must
then explain and defend answers to the questions: for
whose benefit and at whose costs should the business
be managed?
44
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STAKEHOLDER MODEL OF CSR
•
It views business as a citizen of the society in
which it operates, like all members of a society
•
Hence, business must conform to the normal
ethical duties & obligations that individuals face
•
While producing goods and services and creating
wealth and profits are among business’
responsibilities, they do not trump other ethical
responsibilities that equally bind all members of a
society.
45
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STAKEHOLDER MODEL OF CSR
Stakeholder
theory
Recognizes that
every business
decision affects a
wide variety of
people, benefiting
some and imposing
costs on others
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STAKEHOLDER MODEL OF CSR
• The law recognizes moral obligations to stakeholders
other than stockholders.
• Stakeholder theory requires balancing ethical
interests of all affected parties.
• Like utilitarianism, it asks managers to consider the
consequences of its decisions.
• Firms exist in a web of relationships with many
stakeholders and these relationships can create a
variety of responsibilities. It may not be possible to
satisfy the needs of each and every stakeholder in a
situation, therefore social responsibility would
require decisions to prioritize competing and
conflicting responsibilities.
47
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•
After exploring this lecture, you will be able to:
1. Define corporate social responsibility (CSR)
2.
3.
4.
5.
6.
7.
Distinguish key components of the term responsibility.
Describe & evaluate the economic model of CSR
Describe & evaluate the stakeholder model of CSR
Describe & evaluate the integrative model of CSR
Role of reputation management as motivation behind CSR
Evaluate the claims that CSR is “good” for business.
48
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Much of CSR literature assumes a tension between the
pursuit of profit and social responsibility.
But, there have always been organizations that turn this
tension around and pursue social ends as the very core of
their mission.
49
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•
Should business be expected to sacrifice profits for social
ends?
•
There are non-profit organizations that pursue social
ends as the very core of their mission
◦ Examples: NGOs, foundations, professional
organizations, schools, colleges, & government
agencies
50
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•
Some for-profit organizations have social goals as a
central part of its strategic mission
•
Because these firms bring social goals into the core of
their business model and fully integrate economic and
social goals, we refer to this as the integrative model of
CSR
• Even defenders of the narrow economic model of CSR, such as
Milton Friedman, would agree that owners of a firm are free to make
the pursuit of social goals a part of their business model. They would
just disagree that these social goals should be part of every business’s
mission.
51
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•
There are no claims that every business should adopt
the principles of benefit corporations.
• Benefit corporations show profit is not incompatible with doing
good.
• There are some who would argue that the ethical
responsibilities associated with sustainability are relevant to
every business concern.
o Sustainability offers a model of CSR that suggests that
ethical goals should be at the heart of every corporate
mission.
52
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•
The implications of sustainability in the Integrative Model
of CSR
◦ As a topic of CSR, sustainability holds that a firm’s financial
goals must be balanced against & even over-ridden by,
environmental considerations
◦ Defenders of sustainability point out that all economic activity
exists within a biosphere that supports all life.
• Hence, present model of economics is already running up against
the limits of the biosphere’s capacity to sustain life.
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The implications of sustainability in the Integrative Model of
CSR.
•
The success of a business must be judged not only against the
financial bottom line of profitability but also against the
ecological and social bottoms lines of sustainability.
•
A firm that is financially profitable, but that uses resources at
unsustainable rates and that creates wastes at rates that
exceed the Earth’s capacity to absorb them is a business or
industry that is failing its fundamental social responsibility.
•
A firm that is environmentally unsustainable is also a firm that is
financially unsustainable in the long-term.
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The implications of sustainability in the Integrative Model of
CSR.
•
A business model that ignores the
biophysical and ecological context of its
activities is a business model doomed to
failure.
55
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• A corporate sustainability report
– provides all stakeholders with financial
and other information regarding a firm’s
economic, environmental, and social
performance.
56
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•
After exploring this lecture, you will be able to:
1. Define corporate social responsibility (CSR)
2.
3.
4.
5.
6.
7.
Distinguish key components of the term responsibility.
Describe & evaluate the economic model of CSR
Describe & evaluate the stakeholder model of CSR
Describe & evaluate the integrative model of CSR
Role of reputation management as motivation behind CSR
Evaluate the claims that CSR is “good” for business
57
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•
CSR not only provides benefits to society, but it can also
benefit an organization by securing its place within a society
•
CSR-related activities can improve profitability by enhancing
a company’s standing among its stakeholders, including
consumers & employees.
◦ Some evidence suggests that employees who are well treated in
their work environments may prove more loyal and more
effective and productive in their work.
◦ The positive impact on the bottom line stems from customer
preference & employee preference.
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CSR can impact a firm’s reputation within a community
•
•
•
With focus on reputation, SR might become merely
social marketing
A firm may use the image of SR to garner customer
support or employee loyalty while the facts do not
evidence a true commitment
Reputation can be hurt if the company is seen as
unresponsive even if they are not.
59
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•
Reputation Management:
•
The practice of attending to the “image” of a firm
•
Nothing wrong with managing a firm’s reputation;
BUT failure to do so might be a poor business
decision
•
But observers could challenge firms for engaging in
CSR activities solely for the purpose of impacting
their reputations
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•
•
•
•
If a firm creates a good image for itself, it builds a type of
trust bank
Hence consumers or stakeholders may give it some
slack if they hear something negative about the firm
If a firm has a negative image, that image may stick,
regardless of what good the corporation may do
Plato explored this issue when he asked whether one
would rather be an unethical person with a good
reputation or an ethical person with a reputation for
injustice. You may find that if given the choice between
the two, companies are far more likely to survive under
the first conception than under the second.
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•
Is good ethics also good business?
◦ One important justification offered for CSR —
enlightened self-interest — presumes that it is, or at
least it can be
◦ Unethical decisions do lead to high profits, but in
the long run ethics pays off, measurement of that
payoff is the challenge
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The Construction of Corporate Reputation Figure 5.2
Source: Copyright © Harris Interactive Research. Reprinted by permission from
www.harrisinteractive.com/services/reputation.asp.
63
5-
•
After exploring this lecture, you will be able to:
1. Define corporate social responsibility (CSR)
2.
3.
4.
5.
6.
7.
Distinguish key components of the term responsibility.
Describe & evaluate the economic model of CSR
Describe & evaluate the stakeholder model of CSR
Describe & evaluate the integrative model of CSR
Role of reputation management as motivation behind CSR
Evaluate the claims that CSR is “good” for business
64
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•
Is there a business case for return on investment from
ethics?
•
Evidence says yes, but the dominant thinking is that, if
it cannot be measured, it is not important
•
Efforts have been made to measure the bottom-line
impact of ethical decision making
65
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• Measurement is critical as there are detractors.
– David Vogel from Berkeley contends that firms with strong CSR
missions serve a niche market of consumers and investors.
• Not a global shift, just an option.
– Research shows that it does pay for businesses in emerging
markets to pursue a wider role in environmental and social
issues.
• Studies find there are a number of expected and
measurable outcomes to ethics programs in
organizations.
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◦ There is a market for firms with strong CSR missions
◦ It is a niche market: Caters to only a small group of
consumers or investors
◦ Contrary to a global shift in the business environment,
CSR instead should be perceived as just one option
for a business strategy that might be appropriate for
certain types of firms under certain conditions
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◦ Researchers warn of the exposure a firm might
suffer if it then does not live up to its CSR promises
◦ Researchers caution against investing in CSR when
consumers are not willing to pay higher prices to
support that investment
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•
A landmark study by Professors Stephen Erfle &
Michael Frantantuono found that firms that were
ranked highest in terms of their records on a variety
of social issues had greater financial performance as
well
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Does a Social Responsibility of Business Exist?
•
The responsibility may be based in a concept of
good corporate citizenship, a social contract, or
enlightened self-interest.
•
It is impossible to engage in business today without
addressing CSR.
•
Despite substantial differences among companies,
research demonstrates that almost all companies
will confront CSR issues from stakeholders at some
point in the near future.
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Conclusion
• This chapter sought to answer the question of whether there
exists a social responsibility of business.
– Several sources were proposed.
– Responsibility may be based in a concept of good corporate
citizenship, a social contract, or enlightened self-interest.
• The chapter explored the challenge of how an inanimate
entity (a corporation) could have a responsibility to others.
– The chapter also discussed the extent of that obligation, both in law
and ethics.
• One thing is certain: it is impossible to engage in business
today without encountering and addressing CSR.
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