Corporate Social Responsibility BCIT Business Ethics 2013

Corporate Social Responsibility (CSR)

BUSA 5200 BCIT 2013

The debate

Friedman vs. Freeman

http://www.youtube.com/watch?v=_sNKIEzYM7M

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Corporate Social Responsibility: Definition

The way a corporation achieves a balance

among its various responsibilities (economic, social, & environmental) in its operations so as to address both shareholder & other stakeholder expectations.

Library resources: http://libguides.bcit.ca/content.php?pid=220843&sid=1833296

http://www.wec.org/about-wec

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Key Elements of CSR

Corporations have responsibilities beyond producing goods/services These responsibilities involve helping to solve

social problems Corporations have a wider constituency than

just shareholders/owners Corporations have impacts beyond simple

marketplace transactions Corporations serve a wider range of human

values than just economic values

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Perspectives on Social Responsibility Amoral view

– Traditional view of businesses as merely profit-making entities (Milton Friedman’s view)

Personal view – Corporations are like people & can therefore be

held accountable for their actions

Social view – Corporations are social institutions with social

responsibilities (best description of current reality?)

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Archie Carroll’s Pyramid of Corporate Social Responsibility

Economic Responsibility

Legal Responsibility

Ethical Resp.

Philan- thropic

“Be profitable”

“Obey the law”

“Be ethical”

“Be a good corporate citizen”

Desired

Expected

Required

Required

Source: Archie Carroll, 1991

CSR Pyramid

The voluntary acceptance by business

corporations of responsibilities to their stakeholders in addition to their (1) economic (“make profits”) and (2) legal (“obey the law”) responsibilities

Archie Carroll’s 4-part definition of CSR: to (1) and

(2) above, add also (3) and (4) of the next slides http://www.terry.uga.edu/directory/profile/acarroll/

CSR Pyramid

(3) ethical responsibilities – operate above minimum behaviour mandated by

law avoid questionable business & mngt. practices follow both spirit & letter of laws respect others’ rights & do what is fair/just refuse to deal with unethical customers & suppliers refuse to take advantage of lax environmental,

labour, health & safety standards in other jurisdictions (care ethic); etc.

CSR Pyramid

(4) philanthropic responsibilities – be a good corporate citizen improve the community assist education, health services,

arts/culture, human welfare generally facilitate voluntarism among employees;

etc.

Economic Components To perform in a manner consistent with

maximising earnings per share To be committed to being as profitable as

possible To maintain a strong competitive position Maintain a high level of operational

efficiency A successful firm is defined as one that is

consistently profitable

Legal Components To perform in a manner consistent with expectations

of government & the law To comply with Federal, Provincial, Municipal laws &

regulations To be a law-abiding corporate citizen To provide goods & services that at least meet

minimal legal requirements To treat employees according to least minimal legal

requirements A successful firm is defined as one that fulfils its

legal obligations

Ethical Components To perform in a manner consistent with the

expectations of society’s ethical norms To recognise & respect new or evolving ethical norms

adopted by society To prevent ethical norms from being compromised in

order to achieve corporate goals To recognise that ethical behaviour goes beyond mere

compliance with laws & regulations – respect both the letter & the spirit of the law

A successful firm is defined as doing what is expected ethically

Philanthropic Components

To help improve education, health services, arts & culture, human welfare generally

To assist voluntarily those projects that enhance a community’s quality of life

To facilitate the voluntary & charitable activities of managers/employees in the community

To assist other organizations that attempt to improve the life of the community

A successful firm is defined as one that performs in a manner consistent with the philanthropic & charitable expectations of society

Good Corporate Citizenship: Potential Benefits

• Reputation management • Reduced risk when

stakeholders are better understood

• Employee recruitment, retention, & motivation

• Investor relations & access to capital are improved

• Corporate citizenship may encourage innovation

• Competitiveness & market positioning

• Corporate citizenship can lead to profits

• “Social license” to operate (due to greater support among stakeholders) Source: World Economic Forum

Strategic Philanthropy “True strategic [philanthropic] giving addresses

important social and economic goals simultaneously, targeting areas of competitive context where the company and society both benefit because the firm brings unique assets and expertise.” (M. Porter, 2002)

This strategic or context-focused philanthropy seeks to

enhance the business environment in the locations where a corporation operates in addition to providing social benefits to others in the community.

Strategic Philanthropy: Example Cisco Systems has created the Cisco Networking

Academy to train and certify computer network administrators throughout the world alleviating a potential constraint on its corporate growth while providing job opportunities to high school graduates and others. Cisco is targeting economically underdeveloped parts of the U.S. and also some developing countries.

HBR article: http://www.fsg.org/Portals/0/Uploads/Documents/PDF/Competitive_Advantage.pdf?cpgn=WP%20DL%20-%20Competitive%20Advantage%20of%20Corporate%20Philanthropy

http://csr.cisco.com/pages/about-cisco-csr

Case for Involvement in CSR

1. CSR helps balance business power with responsibility (otherwise, as the “Iron Law of Responsibility” suggests, abuse of power leads to eventual loss of power)

2. Discourages government regulation (may prevent more restrictive, costly government laws & regulations)

Case for Involvement (CSR)

3. Business is part of a larger system (namely, “society”)

(business is interdependent on & vulnerable to changes in other parts of this system)

(today’s stakeholders better-organized, harder to ignore than in past; business must respond effectively)

(business requires a “social license” to operate)

Today’s Stakeholders

Pluralistic society (many different interests/stakeholders) + Rising expectations held by the public

(regarding both material goods & especially quality of life issues) + Interest groups & the public are now less

deferential to business & govt. authority = If expectations not met by business, interest

groups try other means (influence business via govt. regulation and/or consumer boycotts) business must respond effectively

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“Social License” to Operate “You don’t get your social license by going

to a government ministry and making an application or simply paying a fee . . . It requires far more than money to truly become part of the communities in which you operate.”

Pierre Lassonde

President Newmont Mining Corporation

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Case for Involvement (CSR) 4. Promotes long-term profits for business

(e.g., donations, above & beyond mandatory taxes, to educational institutions to fund basic research & to educate future skilled workforce)

5. Good public image (firms that adopt CSR appeal to certain consumer market segment; these firms also can more easily attract & retain quality employees; also appeal to some investors)

Case for Involvement (CSR)

6. Some social problems are business opportunities (helps society, and business gains as well)

7. Business should view CSR from a long-term perspective (will CSR actions now lead to profits in long-term – some business leaders think so)

Case for Involvement (CSR)

8. CSR generates goodwill for business

9. Business has the resources / “Let business try” (business has leadership, managerial, & technical expertise in many areas, plus financial & other resources to try to solve some social problems; some problems best handled by business; fill in gaps when government doesn’t act)

Case for Involvement (CSR) 10. Better to be proactive rather than reactive

(e.g., easier & less costly to prevent environmental pollution & deterioration rather than to clean it up later) (preempt problems before they grow harder to manage)

11. “Social capitalism” (businesspeople are

concerned citizens; some businesspeople use business, rather than interest groups & government, to advance social goals) (e.g., Patagonia Outdoor Clothing & Interface Carpet Tiles, both are concerned about environment & take concrete action)

Case for Involvement (CSR)

12. Corrects social problems caused by business (voluntarily compensate society for harms done to it; prevents redress in the courts; the “fair or just” thing to do because it attempts to balance harms/costs with offsetting benefits)

Counterargument (against CSR)

1. Profit maximization is the purpose of business (this is Milton Friedman’s main point; refer to his paper; business is an economic institution, not a social one)

2. Business is responsible to shareholders/owners (not legitimate for managers to do CSR; let owners decide)

Economic Efficiency Ethic Judges the moral implications of a decision

by its economic consequences. (Provides the moral justification for a

market system. Often conflicts with government requirements approach.) Rationale: By focusing on economic

efficiency, profits are maximized. And society ultimately benefits. View advanced by Milton Friedman

Counterargument

3. Business lacks mandate (does business have public support to address social problems? Does this usurp role of government?)

4. Business lacks skills (do businesspeople really have the skills needed to identify & to solve social problems?)

Counterargument

5. Business has enough power already; don’t give it another role (some are concerned that “business values” will influence social issues in addition to already influencing economic issues)

(however, business is a powerful institution in society whether or not business adopts CSR practices)

Counterargument

6. Lowers economic efficiency & profits (harms society by diverting scarce resources away from optimal use as determined by free market; increased business failures may result)

7. No clear CSR standards (what is responsible behaviour? what is selfish? what are the standards? who determines these standards?)

Counterargument 8. Hard to hold business accountable (there are

only a few ways currently to effectively hold business to account for its social impacts) (certainly govt. has a role; but other than that – who?) (some interest groups act as watchdogs/monitors, but without legal enforcement powers however – they only have the power to embarrass or organize boycotts)

9. Only divided/mixed support exists for CSR among businesses (as a result, social issues will not be dealt with effectively in a coordinated manner)

Counterargument

10. Higher costs of CSR-firms penalizes them relative to competitors (e.g., firms that outsource to low-wage nations do better than firms who refuse to outsource on CSR grounds)

11. Imposes hidden costs / passes them on to stakeholders (CSR costs may lead to lower wages for employees; lower dividends for owners; higher prices for customers)

Counterargument

12. Places responsibility on business rather than on individuals

• may encourage individuals to abandon their own responsibility to society – erosion of individual responsibility may result

• individuals should work on social problems & not use corporate resources for this purpose

Counterargument

13. Business uses CSR only as a public relations tool

• CSR sometimes adopted to advance narrow profit-oriented goals, not as a genuine concern with ethics & philanthropy increases cynicism about business on the part of some stakeholders) (Joel Bakan – CSR is an attempt by business to escape government regulation

Value Creation Opportunities & Collaboration with Stakeholders

Perhaps profit goals & social goals are not always mutually exclusive.

From stakeholder/issues management, we know that genuine collaboration may sometimes be possible (i.e., an integrative, “win-win” outcome as opposed to a distributive, “win-lose” outcome).

There is no guarantee of this, but it might be worth exploring the possibility in certain circumstances.

Trade-offs: R. Edward Freeman http://www.youtube.com/watch?v=ZCa3_W3nTsw&feature=endscreen&NR=1

“The reason I am in business is I want to protect what I love.” Yvon Chouinard

Yvon Chouinard of Patagonia (outdoor clothing manufacterer) http://www.youtube.com/watch?v=O3TwULu-Wjw (11:20)

http://www.youtube.com/watch?v=9aRIrbY2ITY&feature=related (2:30)

Ray Anderson of Interface (carpet manufacterer) http://www.youtube.com/watch?v=OUG4JXE6K4A (2:30)

Additional Information

Bakan, J. The Corporation: The Pathological Pursuit of Profit and Power. 2004.

Karakowsky, L., A.B. Carroll, and A.K. Buchholtz. Business and Society: Ethics and Stakeholder Management, First Canadian Edition. 2005.

Sexty, R.W. Canadian Business and Society: Ethics and Responsibilities, Second Edition. 2011.