Definition of CSR
The duty a corporation has
to create wealth by using
means that avoid harm to,
protect, or enhance societal
assets”
“
p. 116
Three Basic Elements of CSR
 Market
Forces
 Mandated Social Programs
 Voluntary Social Programs
 Exceed
regulations (legal plus; safety,
pollution, discrimination,…)
 Respond to national consensus (charities)
 Actions beyond public consensus (work to
make changes)
Basic Elements of Social
Responsibility
5-11
The Evolving Idea of Corporate
Social Responsibility
 The fundamental idea is that corporations
have duties that go beyond lawful
execution of their economic function.
 Over time the doctrine has evolved to
require more expansive action by
companies largely because:
 Stakeholder groups have gained more
power to impose their agendas
 The ethical and legal philosophies
underlying it have matured
5-4
Arguments Against CSR
1
Classical Economic Argument:
Management’s only responsibility is to
maximize the profits of its owners.
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2
3
4
a. Role of business in our system
b. Duty to shareholders - private property rights
Cost of social action is passed on to consumers
CSR decreases competitiveness (esp.
international)
Business already has enough power
Arguments For CSR
 CSR
is in business’s long-term self-interest
 Must
use power or lose legitimacy (social
contract)
 Ward off government intervention &
regulation
 Public relations
 Ethical
Imperative
 Other:
 Businesses
are reservoirs of skill
General Principles of CSR
 Corporations
are Primarily Economic
Institutions.
 Must follow the law.
 Managers must act ethically.
 Duty to correct the adverse social
impacts they cause.
General Principles of CSR cont.
Social responsibility varies with company
characteristics (e.g., size, industry, location).
 Managers should try to meet the legitimate
needs of stakeholders.
 Comply with the norms of the social contract.
 Publicly report on market, mandated, and
voluntary actions.

Are Social and Financial
Performance Related?
 A review of 95 studies over 30 years found that a
majority (53 percent) of businesses showed a
positive relationship between profits and
responsibility, while 5 percent showed a negative
 Results inconsistent and ultimately inconclusive
due to methodological questions.
 Generally held that it will not hurt you, even if it
doesn’t help.
5-13
Market for Morals
 There is no evident relationship between
ethics and corporate market value.
 Can be a profitable niche strategy
 People want it to be true.
 It eliminates the issue of ethics in business
 Confirmation bias – select data that support
preconceived views and ignore data that
challenge those views
 Bad things happen to good people and to
good businesses, naïve to think otherwise.
Concluding Observations
 Historically, corporations have been motivated
primarily by the central focus on profits.
 Corporations are now being pressured to alter
this focus.
 The idea of corporate social responsibility has
continuously expanded in meaning.
 The power of stakeholders to define corporate
duty has increased.
 The explosive growth of global trade and global
corporations has created new standards and
practices of social responsibility tied to global
norms.
5-24
Definitions

Stakeholders

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Those who are affected by and affect the
actions of a firm.
Primary Stakeholders
Those who have a formal, official or contractual
relationship with a firm.
 E.g., stockholders, customers, employees,
communities, governmental agencies, …


Secondary Stakeholders
All other stakeholders
 E.g., environmentalists, media, trade groups, …

Stakeholder Management

Strategic Approach


Multifiduciary Approach

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Views stakeholders as factors to be taken into
consideration and managed while the firm is
pursuing profits for the shareholders
Management has a fiduciary responsibility to
stakeholders just as it does to shareholders.
Places stakeholders and shareholders on roughly
equal footing.
Stakeholder Synthesis

The firm has a moral but not a fiduciary
responsibility to stakeholders
Criticisms

Not a realistic assessment of power
relationships.
 seeks

to replace force with moral duty.
Sets up too vague a guideline.
 Who
is a stakeholder? What do we owe
them? How do we balance competing
demands?
 No single, clear, objective measure of
ethical/economic performance.
5 Major Questions

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Who are our stakeholders?
What are their stakes?
What opportunities and challenges do
our stakeholders present?
What responsibilities does our firm have
to all its stakeholders?
What strategies or actions should our
firm take to deal with stakeholder
challenges and opportunities?