Principles of Management

Principles of Management Corporate Social Responsibility

A New Skill for Managers Discussions of the responsibilities of business and its role

in society have been motivated by the growing awareness of unfair or discriminatory business behavior and an increasing number of social and environmental scandals

Businesses are now expected to behave in responsible ways.

This entails:

A managerial obligation to take action that protects and improves both the welfare of society as a whole and the interests of the organization.

The Davis Model of Corporate Social Responsibility A generally accepted model of corporate social responsibility was developed

by Keith Davis. Davis’s model is a list of five propositions that describe why and how business

should adhere to the obligation to take action that protects and improves the welfare of society as well as that of the organization:

Social responsibility arises from social power Business shall operate as a two-way open system, with open receipt of

inputs from society and open disclosure of its operations to the public The social costs and benefits of an activity, product, or service shall be

thoroughly calculated and considered in deciding whether to proceed with it

The social costs related to each activity, product, or service shall be passed on to the consumer

Business institutions, as citizens, have the responsibility to become involved in certain social problems that are outside their normal areas of operation

Social responsibility arises from social power

Business has a significant amount of influence on, or power over, such critical social issues as minority employment and environmental pollution.

Society’s legal system does not expect more of business than it does of each individual citizen exercising personal power.

Business shall operate as a two-way open system, with open receipt of inputs from society and open disclosure of its operations to the public

Business must be willing to listen to what must be done to sustain or improve societal welfare.

Society must be willing to listen to business reports on what it is doing to meet its social responsibilities.

There must be ongoing, honest, and open communications between business and society’s representatives if the overall welfare of society is to be maintained or improved.

The social costs and benefits of an activity, product, or serviceshall be thoroughly calculated and considered in deciding whether to proceedwith it

Technical feasibility and economic profitability are not the only factors that should influence business decision making.

Business should also consider both the long- and short-term societal consequences of all business activities before undertaking them.

The social costs related to each activity, product, or service shall be passed on to the consumer

Business cannot be expected to completely finance activities that may be socially advantageous but economically disadvantageous.

The cost of maintaining socially desirable activities within business should be passed on to consumers through higher prices for the goods or services related to these activities.

Business institutions, as citizens, have the responsibility to become involved in certain social problems that are outside their normal areas of operationBusiness possesses the expertise to solve a

social problem with which it may not be directly associated, it should be held responsible for helping society solve that problem.

Because business eventually will reap an increased profit from a generally improved society, business should share in the responsibility of all citizenry to generally improve society

Issues related to CSREmployment conditions

Environmental sustainability

Consumer affairs

Social problems/wellfare

Quality of life

Some examplesCoca-Cola Company is exploring ways to maintain its bottling

operation in India without using underground water

The Mohawk Home Company is developing a new line of bathroom rugs with all natural fibers

Kellogg’s is developing environmentally sensitive products, such as its organic Rice Krispies.

Nike, the world-famous athletic-gear manufacturer, recently felt so strongly that its corporate philosophy on social responsibility issues should be clearly formulated and communicated that the company created a new position, vice president of corporate and social responsibility

Determining Whether a Social Responsibility ExistsOne challenge facing managers who are

attempting to be socially responsive is to determine which specific social obligations are implied by their business situation.

Managers in the tobacco industry, for example, are probably socially obligated to contribute to public health by pushing for the development of innovative tobacco products that do less harm to people’s health

What can the managers do? Determining exactly which social responsibilities an

organization should pursue and then deciding how to pursue them are the two most critical decisions for maintaining a high level of social responsiveness within an organization.

Incorporates social goals into the annual planning process.Seeks comparative industry norms for social programs.Presents reports to organization members, the board of

directors, and stockholders on social responsibility progress.Experiments with different approaches for measuring social

performance.Attempts to measure the cost of social programs as well as

the return on social program investments.

What can the managers do?

Managers have known for some time that to achieve desirable results in these areas, they must be effective in planning, organizing, influencing, andcontrolling.

Achieving social responsibility results is no different.

Planning organizing Social Responsibility ActivitiesSocial trends forecasts should be performed

within the organizational environment along with the more typically performed economic, political, and technological trends forecasts.

Examples of social trends that organizations

can forecast are societal attitudes toward water pollution, safe working conditions, and the national education system.

Influencing Individuals Performing SocialResponsibility Activities

Influencing is the process of guiding the activities of organization members to help attain the organization’s social responsibility objectives.

To influence appropriately in this area, managers must lead, communicate, motivate, and work with groups in ways that result in the attainment of the organization’s social responsibility objectives.

Controlling Social Responsibility ActivitiesControlling, as discussed last week, is making

things happen as they were planned to happen.

To control, managers assess or measure what is occurring in the organization and, if necessary, change these occurrences in some way to make them conform to plans.

Controlling in the area of social responsibility entails the same two major tasks.

Areas of MeasurementThe economic function area—A

measurement should be made of whether the organization is performing such activities as producing goods and services that people need, creating jobs for society, paying fair wages, and ensuring worker safety.

This measurement gives some indication of the economic contribution the organization is making to society.

The quality-of-life areaThe measurement of quality of life should focus on

whether the organization is improving or degrading the general quality of life in society.

Producing high-quality goods, dealing fairly with employees and customers, and making an effort to preserve the natural environment are all indicators that the organization is upholding or improving the general quality of life.

As an example of degrading the quality of life, some people believe that cigarette companies, because they produce goods that can harm the health of society overall, are socially irresponsible.

The social investment areaThe measurement of social investment deals

with the degree to which the organization is investing both money and human resources to solve community social problems.

The organization could be involved in assisting community organizations dedicated to education, charities, and the arts.

The problem-solving area

The measurement of problem solving should focus on the degree to which the organization deals with social problems, such as participating in longrange community planning and conducting studies to pinpoint social problems.

The Social Audit: A Progress Report

A social audit is the process of measuring the present social responsibility activities of an organization to assess its performance in this area.

The basic steps in conducting a social audit are monitoring, measuring, and appraising all aspects of an organization’s social responsibility performance.

Discussion on CSR

Arguments for CSR:Business, as a whole, is a subset of society, one

that exerts a significant impact on the way society exists.

Because business is such an influential member of society it has the responsibility to help maintain and improve the overall welfare of society.

If society already puts this responsibility on its individual members, then why should its corporate members be exempt?

Arguments for CSRBusiness should perform social responsibility

activities because profitability and growth go hand-in-hand with responsible treatment of employees, customers, and the community.

Performing social responsibility activities is a means of earning greater organizational profit.

Arguments Against Business Performing Social Responsibility Activities“the basic mission of business [is] thus to produce

goods and services at a profit, and in doing this, business [is] making its maximum contribution to society and, in fact, being socially responsible.” Milton Friedman

Friedman argues that making business managers simultaneously responsible to business owners for reaching profit objectives and to society for enhancing societal welfare sets up a conflict of interest that could potentially cause the demise of business as it is known today.