Crane et al. Crane et al. Business Ethics (5th Edition) Chapter 2 © Crane et al., 2019. All rights reserved. Crane et al. Framing Business Ethics: Corporate Responsibility, Stakeholders, and Citizenship Lecture 2 © Crane et al., 2019. All rights reserved. Overview • Analyse the notion of responsibility for corporations • Distinguish the various concepts of CSR • Present the stakeholder theory of the firm • Outline the concept of corporate accountability • Critically examine the notion of corporate citizenship • Discuss implications of these – mostly US-born – concepts for different regions Crane et al.: Business Ethics, 5th edition Towards a framework for business ethics What is a corporation? Crane et al.: Business Ethics, 5th edition Key features of a corporation • A corporation is essentially defined in terms of legal status and the ownership of assets • Corporations are typically regarded as ‘artificial persons’ in the eyes of the law • Corporations are notionally ‘owned’ by shareholders, but exist independently of them • Managers and directors have a ‘fiduciary’ responsibility to protect the investment of shareholders Crane et al.: Business Ethics, 5th edition Can a corporation have social responsibilities? • Milton Friedman’s classic article is “The social responsibility of business is to increase its profits” (1970) • Friedman vigorously argued against the notion of social responsibilities for corporations based on three main arguments: – Only human beings have a moral responsibility for their actions – It is managers’ responsibility to act solely in the interests of shareholders – Social issues and problems are the proper province of the state rather than corporate managers Crane et al.: Business Ethics, 5th edition Can a corporation be morally responsible for its actions? • Long, complex debate but generally support from literature for some degree of responsibility accredited to corporations. Argument based on: – Every organisation has a corporate internal decision structure which directs decisions in line with predetermined goals (French 1979) – All organisations manifest a set of beliefs and values that lay out what is generally regarded as right or wrong in the corporation – organizational culture (Moore 1999) Crane et al.: Business Ethics, 5th edition Corporate Social Responsibility Crane et al.: Business Ethics, 5th edition Why do corporations have social responsibilities? • Business reasons (‘enlightened self-interest’) – – – – Extra and/or more satisfied customers Employees may be more attracted/committed Forestall legislation Long-term investment which benefits corporation • Moral reasons: – – – – Corporations cause social problems Corporations should use their power responsibly All corporate activities have some social impacts Corporations rely on the contribution of a wide set of stakeholders in society, not just shareholders Crane et al.: Business Ethics, 5th edition What is the nature of corporate social responsibilities? Corporate social responsibility The attempt by companies to meet the economic, legal, ethical, and philanthropic demands of a given society at a particular point in time. (p. 50) Crane et al.: Business Ethics, 5th edition Carroll’s four-part model of corporate social responsibility Desired by society Philanthropic Responsibilities Ethical Responsibilities Expected by society Required by society Legal Responsibilities Required by society Economic Responsibilities Source: Carroll (1991) Crane et al.: Business Ethics, 5th edition CSR in an international context • CSR strong in US. Influence elsewhere is more recent. This is partly explained by explicit vs. implicit CSR • Regional differences exist with respect to all CSR levels: – Economic responsibility • Focus in USA on shareholders; France has extensive responsibility for employees; India has tradition of investment in the local community – Legal responsibility • State seen in Europe as key enforcer of rules; elsewhere government seen with more scepticism (e.g. corrupt, interfering with liberty) – Ethical responsibility • Wide range of local ethical values & preferences: expectations vary – Philanthropic responsibility • Europe tends to compel giving via legal framework; elsewhere (e.g., USA, India, China), companies are expected to share their wealth. Crane et al.: Business Ethics, 5th edition CSR and strategy: corporate social responsiveness • Strategies of CSR – Traditional CSR • Focus on risk. Reactive. • No clear link to value creation and business model. CSR is distribution of created value. • “CSR is bolted on” – Contemporary CSR • Focus on reward. Proactive. • Clear link to value creation and business model. CSR is value creation. • “CSR is built-in” Crane et al.: Business Ethics, 5th edition Outcomes of CSR: corporate social performance • Outcomes of delineated in three concrete areas: – Social policies – Social programmes – Social impacts Crane et al.: Business Ethics, 5th edition Stakeholder theory of the firm Crane et al.: Business Ethics, 5th edition Stakeholder theory of the firm • Theory developed by Edward Freeman (1984) • A stakeholder of an organization is: – …any group or individual who can affect, or is affected by, the achievement of the organization’s objectives (Freeman 1984:46) • More precise definition of ‘affects’ and ‘affected by’ (Evan and Freeman 1993) – Principle of corporate rights - the corporation has the obligation not to violate the rights of others – Principle of corporate effect – companies are responsible for the effects of their actions on others Crane et al.: Business Ethics, 5th edition Stakeholder theory of the firm: Traditional management model Shareholders Customers Firm Suppliers Crane et al.: Business Ethics, 5th edition Employees Stakeholder theory of the firm Competitors Government Shareholders Customers Firm Suppliers Employees Civil society Crane et al.: Business Ethics, 5th edition Stakeholder theory of the firm: A network model Customer stakeholder 1 Competitor s Governmen t Shareholde rs Customers Customer stakeholder 3 Firm Suppliers Employees Employee stakeholder 1 Civil society Supplier stakeholder 1 Civil society stakeholder 2 Crane et al.: Business Ethics, 5th edition Civil society stakeholder 1 Employee stakeholder 2 Why stakeholders matter • Milton Friedman – businesses should only be run in the interests of their owners • Freeman - others have a legitimate claim on the corporation – Legal perspective • ‘Stake’ in corporation already protected legally in some way (e.g. legally binding contracts) – Economic perspective • Externalities – outside contractual relationships • Agency problem – short term interests of ‘owners’ vs. long term interests of managers, employees, customers etc. Crane et al.: Business Ethics, 5th edition A new role for management • According to Freeman, this broader view of responsibility towards multiple stakeholders assigns a new role to management. • Rather than simply being agents of shareholders, management has to take into account the rights and interests of all legitimate stakeholders: – Stakeholder democracy – Corporate governance Crane et al.: Business Ethics, 5th edition Stakeholder thinking in an international context • One could argue that although the terminology of stakeholder theory is relatively new in places like Europe or Asia, the general principles have actually been practised for some time: – German supervisory board includes employee representatives – “Scandinavian Cooperative Advantage” at IKEA, Novo Nordisk, H&M, etc. – ‘Keiretsu’ system in Japan (Chaebol in Korea), a network of banks, manufacturers, suppliers and service providers Crane et al.: Business Ethics, 5th edition Different forms of stakeholder theory • Donaldson & Preston (1995): – Normative stakeholder theory: attempts to provide a reason why corporations should take into account stakeholder interests – Descriptive stakeholder theory: attempts to ascertain whether (and how) corporations actually do take into account stakeholder interests – Instrumental stakeholder theory: attempts to answer the question of whether it is beneficial for the corporation to take into account stakeholder interests Crane et al.: Business Ethics, 5th edition Corporate accountability The firm as a ‘political’ actor Crane et al.: Business Ethics, 5th edition Corporate accountability • Corporate accountability refers to whether a corporation is answerable in some way for the consequences of its actions • Firms have begun to take on the role of ‘political’ actors – taken up many of the functions previously undertaken by government because: – Governmental failure – Increasing power and influence of corporations Crane et al.: Business Ethics, 5th edition Reasons for the political role of the firm • Government failure – Governments incapable? Unwilling? • Rise of ‘subpolitics’ • Corporate power on the rise – Liberalization and deregulation results in more power and choice for private actors – Privatization of ‘public’ services – Responsible for employment decisions – Globalization – Governments increasingly encourage self-regulation Crane et al.: Business Ethics, 5th edition The problem of democratic accountability • Who controls corporations? • To whom are corporations accountable? • Key to corporate accountability is transparency • Transparency is the degree to which corporate decisions, policies, activities and impacts are acknowledged and made visible to relevant stakeholders Crane et al.: Business Ethics, 5th edition Corporate citizenship Crane et al.: Business Ethics, 5th edition Defining corporate citizenship: three perspectives • A limited view of CC – this essentially equates CC with corporate philanthropy • An equivalent view of CC – this essentially equates CC with CSR • An extended view of CC – this acknowledges the extended political role of the corporation in society Crane et al.: Business Ethics, 5th edition Three views of corporate citizenship Limited View Equivalent View Extended View Focus Philanthropy, focused All areas of CSR on projects, limited scope Citizenship: social, political and civil rights Main Stakeholder Group Local communities, employees Broad range of stakeholders Broad range of citizens; society in general Motivation Primarily philanthropic; also economic where citizenship is strategies Mixed – economic, legal, ethical, philanthropic Political Moral Grounding Reciprocity, i.e. ‘putting something back’ Duty to be responsible and avoid harms to society Grounding is not moral but comes from changes in the political arena Source: Crane et al (2019) Crane et al.: Business Ethics, 5th edition An extended view of CC Corporate citizenship Social role of the corporation in governing citizenship Social rights corporation as provider/ignorer Civil rights corporation as dis-/enabler Political rights corporation as channel/blockage Crane et al.: Business Ethics, 5th edition Assessing corporate citizenship as a framework for business ethics Extended view of CC adds something significant that helps us frame business ethics in new ways: • Helps us better see the political role of the corporation • Clarifies the demand for corporate accountability • Helps to understand business in relation to common citizenship rights within different cultures and some of the challenges posed by globalization • The rights of citizenship have strong links to the goal of sustainability • Provides a critical perspective on corporations’ social role that is more in keeping with non-US ways of thinking about business ethics Crane et al.: Business Ethics, 5th edition Corporate Citizenship Statements Company Industry and Country of Origin Corporate Citizenship Statement (emphasis added) Source Citibank Financial Services, US At Citi, we intentionally use the work ‘Citizenship’ to describe these efforts because the word reflects a sense of belonging to communities that extend well beyond our firm. It also reflects a longstanding recognition that our success is inextricably linked to the positive outcomes and progress we can help enable for others. And its an acknowledgment that we take our responsibility to use our many strengths and resources to contribute to the greater good very seriously. https://www.citigroup.com/c iti/about/citizenship/issueareas.html Distell Brewing and beverage, South Africa We are committed to being a caring, socially and environmental responsible corporate citizen that conducts business with fairness and integrity, This includes contributing to safe and responsible alcohol consumption, driving socio-economic transformation and championing ethical conduct. https://www.distell.co.za/co rporate-responsibility/ Panasonic Electronics, Japan Panasonic is promoting corporate citizenship activities (social contribution activities) and working to solve social issues around the world. Panasonic, as a global corporate citizen, aims to be a benefit to the environment by creating more energy than it uses. https://www.panasonic.com /global/corporate/sustainab ility/citizenship.html Source: Crane et al (2019) Crane et al.: Business Ethics, 5th edition Summary • Business ethics is related to the social role of the corporation • Confining corporations to commercial activities too limited • Different perspectives and their relevance in European context – CSR – Stakeholder theory – Corporate accountability • Effects of globalization on role of corporation • Corporate citizenship is latest concept in the field Crane et al.: Business Ethics, 5th edition
