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McGraw-Hill/Irwin

CHAPTER 5

CORPORATE SOCIAL RESPONSIBILITY

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CORPORATE SOCIAL RESPONSIBILITY (CSR)

It refers to the responsibilities that a business has to the society in which it operates.
From an economic perspective: A business is an institution that exists to produce goods and services demanded by society and, by engaging in this activity, the business creates jobs and wealth that benefit society further.
The law has created a form of business called corporations, which limits the liability of individuals for the risks involved in the business activities.

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ECONOMIC MODEL OF CSR

It hold that business’ sole duty is to fulfill the economic functions businesses were designed to serve.
According to this model, the social responsibility of business managers is simply to pursue profit within the law.
Profit is a direct measure of how well a business firm is meeting society’s expectations
Profit is an indication that business is efficiently and successfully producing the goods and services that society demands.
This model denies that business has any social responsibilities beyond the economic and legal ends for which it was created.

Adam Smith was among the first to articulate a version of this perspective Milton Friedman’s classic 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 of the social responsibility of business. Contrary to popular belief, Friedman does not ignore ethical responsibility in his analysis; he merely suggests that decision makers are fulfilling their responsibility if they follow their firm’s self-interest in pursuing profit. Friedman explains that a corporate executive has a responsibility to conduct business in accordance with [his or 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 (emphasis added).

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ECONOMIC MODEL OF CSR

It has its roots in the utilitarian tradition and in neoclassical economics.
Primary social responsibility of business managers: Pursue maximum profits for shareholders.
By pursuing profits, business managers will allocate resources to their most efficient uses.
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 (Utilitarianism interpretation)

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ETHICS AND SOCIAL RESPONSIBILITY

Three different types of responsibilities, on a scale from more to less demanding or binding:
Duty or obligation in order to indicate that they oblige us in the strictest sense, is the responsibility not to cause harm to others.
To prevent harm even in those cases where one is not the cause.
To do good (Volunteer and charitable work)

Refer to:

Reality Check Corporate Philanthropy: How Much Do Corporations Give?

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PHILANTHROPIC MODEL OF CSR

It holds that, like individuals, business is free to contribute to social causes as a matter of philanthropy.
Business has no strict obligation to contribute to social causes; but it can be a good thing when they do so.
Business has no ethical obligations to serve wider social goods.
Business should be encouraged to contribute to society in ways that go beyond the narrow obligations of law and economics.
Within the philanthropy model, there are occasions in which charity work is done because:
It brings the firm good public relations.
It provides a helpful tax deduction.
It builds good-will and/or a good reputation within the community.

Refer to:

Reality Check Putting Your Money Where Your Mouth Is?

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PHILANTHROPIC MODEL OF CSR

In few cases, firms contribute to charity anonymously, corporate support for the social causes is not done for potential business benefits, but instead because the business manager or owner decides that it is simply a good and right thing to do.
There is overlap between decision makers who engage in the Philanthropic Model for reputational reasons and those who follow the economic view of business’s social responsibilities.
The Philanthropic model in which business support for a social cause is done simply because it is the right thing to do differs from the reputational version in terms of the underlying motivation.

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PHILANTHROPIC MODEL OF CSR

From the perspective of the narrow view of CSR, only philanthropy done for reputational reasons and financial ends is ethically responsible.
Business managers are the agents of owners, they have no right to use corporate resources except to earn owners greater returns on their investment.
From the perspective of the philanthropic model, philanthropy done for financial reasons is not fully ethical and not truly an act of social responsibility.

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INTEGRATIVE MODEL OF CSR

Non-profit organizations: Pursue social ends as the very core of their mission.
Examples: NGOs, foundations, professional organizations, schools, colleges, and government agencies.
Some for-profit organizations have social goals as a central part of the strategic mission of the organization.
Social entrepreneurship
Example: Grameen bank
Sustainability
Interface corporation

Refer to:

Reality Check Browsing for Social Good

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INTEGRATIVE MODEL OF CSR

Even advocates of the narrow economic model of CSR agree that these social goals should be part of every business model.
Social entrepreneurs demonstrate that profit is not incompatible with doing good, and therefore that one can do good profitably.
Some argue that the ethical responsibilities associated with sustainability are relevant to every business concern.
Sustainability offers a model of CSR that suggests that ethical goals should be at the heart of every corporate mission.

Refer to:

Reality Check Fairness in a Cup of Coffee: Example of the Integrative Model

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INTEGRATIVE MODEL OF CSR

The implications of sustainability in the Integrative Model of CSR.
Sustainability holds that a firm’s financial goals must be balanced against, and perhaps even over-ridden by, environmental considerations.
Defenders of sustainability point out that all economic activity exists within a biosphere that supports all life.
They argue that present model of economics is already running up against the limits of the biosphere’s capacity to sustain life.
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 environmentally unsustainable — In the long-term, financially unsustainable.

Refer to:

Reality Check Will Sustainability Reports Replace the Annual Financial Reports?

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EXPLORING ENLIGHTENED SELF-INTEREST

Reputation management: The practice of attending to the “image” of a firm.
There is nothing inherently wrong with managing a firm’s reputation; the 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.
The challenge is based on the fact that reputation management often works.

Refer

Reality Check Enron as “Most Admired”

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EXPLORING ENLIGHTENED SELF-INTEREST

Examine the perspectives of various consumer and advocacy groups in connection with well-known businesses at any of the following Web sites:
www.cokespotlight.org
www.ihatestarbucks.com
www.starbucked.com
www.walmartsurvivor.com
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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FIGURE 5.3 - THE CONSTRUCTION OF CORPORATE REPUTATION

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TABLE 5.1 - MULTIPLE BOTTOM-LINE PERFORMANCE INDICATORS