Discussion 2

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Chapter 1

Social Responsibility Framework

Ferrell, Thorne, Ferrell: Business in Society 7/e © 2021 Chicago Business Press. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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1-1 Define the concept of social responsibility

1-2 Trace the development of social responsibility

1-3 Examine the global nature of social responsibility

1-4 Discuss the benefits of social responsibility

1-5 Introduce the framework for understanding social responsibility

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What do you believe organizations should be responsible for accomplishing?

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Businesses should:

Look beyond their self-interests

Recognize that they belong to a larger group that expects responsible participation

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social responsibility

a strategic focus for fulfilling economic, legal, ethical, and philanthropic responsibilities, can also be referred to as corporate social responsibility (CSR)

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Social Responsibility

Goes beyond being philanthropic or environmentally sustainable

75% of Americans think social responsibility is important in developing attitudes toward brands

Never-ending process of continuous improvement

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philanthropy

the desire to improve the welfare of others through donations of money, resources, or effort

consumer protection laws

regulations enacted to protect vulnerable members of society with formal safeguards for consumers

sustainability

a company’s economic, environmental, and social performance

Employees thrive when managers:

Treat them with dignity

Provide the right atmosphere

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legal responsibility

the most basic expectation that a company must comply with the law

employee well-being

The health and wellness of employees, including how workers feel about their work and their working environment

Applies to all types of businesses

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Small Businesses

Large Businesses

Sole Proprietorships

Partnerships

Multinational Corporations

Nonprofit Organizations

Nonprofit organizations are expected to be socially responsible

Government agencies are expected to:

Uphold the common good

Act in an ethical and responsible manner

Social responsibility efforts of large corporations usually receive the most attention, but the activities of small businesses may have a greater impact on local communities

Applies to All Types of Businesses

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Needs a strategic focus

Requires a formal commitment from top management

Requires action and results

Depends on collaboration and coordination across business and among constituencies

Large companies often create specific positions and departments to support social responsibility programs

Communicated through mission and vision statements, annual reports, websites, public relations

Social responsibility initiatives should be:

aligned with the company’s corporate culture

integrated with companywide goals and plans

fully communicated within and outside the company

measured to determine their effectiveness and strategic impact

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corporate culture

shared values, attitudes, and beliefs that characterize members of an organization

Many people believe that businesses should accept and abide by four types (stages) of responsibility:

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Stage 1

Businesses have responsibility to be financially viable so that they can:

Provide a return on investment for their owners

Create jobs for the community

Contribute goods and services to the economy

Economy influenced by the ways organizations relate to their shareholders, customers, employees, suppliers, competitors, community, and natural environment

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Stage 2

Companies required to maintain compliance with legal and regulatory requirements specifying the nature of responsible business conduct

Businesses perceived as irresponsible:

Elected representatives may draft legislation to regulate the firm’s behavior

Firm may be sued in a court of law in an effort to force it to “play by the rules”

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Stage 3

Companies must decide what they consider to be just, fair, and right

Business ethics refers to the principles and standards that guide behavior in the world of business

Principles are specific and universal boundaries for behavior that should never be violated

Values are enduring beliefs and ideals that are socially enforced

A code of conduct is a written collection of the rules, principles, values, and expectations of employee behavior

Strategic responsibility is realized when a company has integrated a range of expectations, desires, and constituencies into its strategic direction and planning processes

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Stage 4

Philanthropic activities promote human welfare and goodwill

By making donations of money, time, and other resources, companies can:

Contribute to their communities and society

Improve the quality of life

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stakeholder orientation

the aim to benefit all parties affected by the success or failure of an organization

resource advantage theory

a theory stating that the value of a resource is viewed relative to its potential to create competitive differentiation or customer value

Who are the key stakeholders of the organization?

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Companies that operate with a stakeholder orientation recognize that business and society are interpenetrating systems, in that each affects and is affected by the other

Research suggests interorganizational networks can be an important element of a successful corporate strategy that creates shared value.

Customers	Employees	Investors
Stockholders	Suppliers	Government
Communities

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Stakeholders

Constituents who have an interest or stake in a company’s products, industry, markets, and outcomes

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1940s

Economic dominance of corporations

Total autonomy of top management

1950s-60s

Few formal governance procedures restraining management actions

Organizational charitable giving expanded (arts, culture, and community)

Laws passed that require protection of the natural environment, safer products, promotion of equity, and supporting workplace diversity

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1970s

World competition, bankruptcies, mergers, and acquisitions

1980s

Flatter organizations (downsizing)

More business scandals

Empowerment of lower-level employees

Focus on profitability and economies of scale

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1990s

Less employee loyalty and increased “job hopping”

Growth of temporary employment

2000s

Special interest groups, companies, human rights activists, and government strive to balance economic and social goals

Major scandals damage the global economy

Greater interest in ethics and social responsibility

Passed the Sarbanes-Oxley Act to overhaul securities laws and governance structures

Public Company Accounting Oversight Board was implemented to regulate the accounting and auditing profession

In 2007 and 2008, a house boom in the U.S. collapsed, setting off a financial crisis

In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act

Intended to protect economy from similar financial crisis by creating more transparency in the financial industry

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New technology creates opportunities for new business models and job opportunities.

While AI has been deployed to solve many business problems, it raises ethical issues of its own.

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artificial intelligence

machine (computer) learning that can perform activities and tasks that usually require human intelligence, such as decisions, visual perceptions, and speech recognition

blockchain

a linked group of ordered transactions that are a subset of a database

Who determines social responsibility on a global scale?

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Increasing globalization of business has made social responsibility an international concern

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Critics believe detrimental because

Destroys unique cultural elements of individual countries

Concentrates power within developed nations and their corporations

Abuses natural resources

Takes advantage of people in developing countries

Holds much greater potential than its critics think, and much more disruptive than its advocates admit

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Advocates of the global economy counter by pointing to

Increases in overall economic growth

New jobs

New and more effective products

Global social responsibility also involves the confluence of government, business, trade associations, and other groups.

Another trend involves business leaders becoming so-called cosmopolitan citizens by simultaneously harnessing their:

leadership skills

worldwide business connections

access to funds

beliefs about human and social rights

Progressive global businesses and executives recognize the shared bottom line that results from the partnership among businesses, communities, government, customers the natural environment

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Benefits of Social Responsibility

↑ efficiency in daily operations	↑ employee commitment
↑ product quality	↑ decision making
↑ customer loyalty	↑ financial performance

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If social responsibility is strategic and aligned with a firm’s mission and values

Then improved performance can be achieved

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Stakeholder Trust

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Trust

The glue that holds organizations together

Allows focus on efficiency, productivity, and profits

Low trust results in organizational decay and relationship deterioration

Trusting relationships between managers and their subordinates and between peers contribute to greater decision-making efficiencies

Customer Loyalty

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A company should strive to market products that satisfy customers’ needs through a coordinated effort that also allows the company to achieve it own objectives

By focusing on customer satisfaction, a business can strengthen its customers’ trust, and as their confidence grows, this in turn increases the firm’s understanding of their requirements

Irresponsible behavior could trigger disloyalty and refusals to buy, whereas good social responsibility initiatives could draw customers to a company’s products

What happens when employee loyalty is breached?

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Employee Commitment

Employee commitment stems from employees who are empowered with training and autonomy

If firms fail to provide value for their employees, loyalty and commitment suffer

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Service quality is positively related to employee loyalty

Leads to higher customer satisfaction and customer loyalty

Shareholder Support

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Investors look at a corporation’s bottom line for profits or the potential for increased stock prices

Relationships with stockholders and other investors must rest on dependability, trust, and commitment

Many shareholders are also concerned about the reputation of companies in which they invest

Shareholder Support

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Those shareholders willing to hold onto their investments for lengthy periods are more willing to sacrifice short-term gains for long-term income.

Focus on short-term gains subjects corporate managers to tremendous pressure to boost short-term earnings (often at the expense of long-term strategic plans)

Attracting long-term investors shields companies from the vagaries of the stock market and gives them flexibility and stability in long-term strategic planning

The Bottom Line: Profits

Studies have identified a positive relationship between social responsibility and financial performance

Company with strong efforts and results in social responsibility is generally not penalized by market forces

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Social responsibility is positively associated with:

Return on investment

Return on assets

Sales growth

How does business conduct relate to a nation’s overall economic conduct?

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National Economy

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Economic well-being is promoted by:

Social institutions are important for the economic well-being of a society

Countries with institutions based on strong trust foster a productivity-enhancing environment

A key factor distinguishing societies with high standards of living from those with lower standards of living is whether the institutions within the society are generally trustworthy

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