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Business Society & Ethics, Week 5:

Corporate Social Responsibility (CSR)

Pro & Con

Business Society & Ethics, Week 5:

Corporate Social Responsibility (CSR)

Pro & Con

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BUSINESS ETHICS WEEK 6: BUSINESS ETHICS WEEK 6: MAIN QUESTIONSMAIN QUESTIONS

1.1. What is Corp. Social Responsibility.What is Corp. Social Responsibility.

2.2. WhereWhere doesdoes thisthis discussiondiscussion comecome from?from?

3.3. What are the for & against arguments What are the for & against arguments regarding the Libertarian CSR view.regarding the Libertarian CSR view.

4.4. What is the Managerial CSR view?What is the Managerial CSR view?

5.5. What is the Stakeholder view of CSR?What is the Stakeholder view of CSR?

6.6. How do the views fit together?How do the views fit together?

7.7. Are there some alternatives to CSR?Are there some alternatives to CSR?

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Tom Jones, C.M.R. 1980

1a. 1a. What is CSR? What is CSR? • The notion that corporations have The notion that corporations have

an obligation to constituent an obligation to constituent groups in society groups in society

other than stockholders other than stockholders and beyond that prescribed by law and beyond that prescribed by law

or union contract.or union contract.

– Voluntary.Voluntary.

– Broad obligation.Broad obligation.

Jerry, Cut out the Tom Jones jokes

or I’m going to revoke your

degree.

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1b. 1b. CSR, So What? CSR, So What? • There is a gap between today’s law There is a gap between today’s law

and the law of the future.and the law of the future.• What’s legal and irresponsible today What’s legal and irresponsible today

may well be illegal tomorrow.may well be illegal tomorrow.• Examples:Examples:

– Hooker Chemical & Love Canal. Hooker Chemical & Love Canal.

– Most Asbestos Cases. Most Asbestos Cases. • Paul Brouder…Paul Brouder…

• Death Benefit Cheaper than worker’s Comp.Death Benefit Cheaper than worker’s Comp.

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2. 2. What is the current debate? What is the current debate?

• The issue as to the proper role of The issue as to the proper role of corporations regarding their corporations regarding their responsibility to society.responsibility to society.

• Origins in:Origins in:– State creation of the Corp. State creation of the Corp.

– Legitimacy argument. Legitimacy argument.

– Noblesse Oblige. Noblesse Oblige.

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3. 3. Libertarian View Libertarian View (1/7)(1/7) [241-45][241-45] • Business as ‘unwitting puppet.’Business as ‘unwitting puppet.’

– They are the unwitting accomplices to the They are the unwitting accomplices to the expansion of the (socialist) welfare state.expansion of the (socialist) welfare state.

– They are helping the expansion of the They are helping the expansion of the state into private affairs.state into private affairs.

– This results in loss of personal freedom This results in loss of personal freedom to pursue ones ends in a free market.to pursue ones ends in a free market.

– Flaw in the argument:Flaw in the argument:• U.S. origins of the Distrust U.S. origins of the Distrust

of Big Government.of Big Government.

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33. . Libertarian View Libertarian View (2/7)(2/7) [241-45][241-45] • Direct responsibility to employers.Direct responsibility to employers.

– The fiduciary responsibility managers The fiduciary responsibility managers have to the shareholders. have to the shareholders.

– If return is less than might otherwise be If return is less than might otherwise be the case the mgr. hasn’t acted legally.the case the mgr. hasn’t acted legally.

• Voluntary vs. ‘social’ responsibilities.Voluntary vs. ‘social’ responsibilities.– One may volunteer their own efforts for One may volunteer their own efforts for

whatever efforts they feel are beneficial.whatever efforts they feel are beneficial.– When agents do it on behalf of a When agents do it on behalf of a

principal without permission principal without permission they are acting ultra vires.they are acting ultra vires.

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3. 3. Libertarian View Libertarian View (3/7)(3/7) [241-45][241-45] • Using the money of the shareholders.Using the money of the shareholders.

– Managers have a fiduciary responsibility Managers have a fiduciary responsibility to the shareholders. to the shareholders.

– They have been hired to maximize They have been hired to maximize profits as best they can.profits as best they can.

– To use funds for any other To use funds for any other purpose is tantamount to purpose is tantamount to embezzlement.embezzlement.

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3. 3. Libertarian View Libertarian View (4/7)(4/7) [241-45][241-45] • Darwinian struggle for survival. Darwinian struggle for survival. [267][267]

– Lose focus & others will crush you.Lose focus & others will crush you.– Flaws in the argument:Flaws in the argument:

• Pay for what you buy / Legitimate Altruism Pay for what you buy / Legitimate Altruism • The opposite may be true. The opposite may be true.

• Caveat Emptor Caveat Emptor [239][239]

– Buyers know markets are fraught with peril. Buyers know markets are fraught with peril. – Flaws in the argument:Flaws in the argument:

• The assumption is that consumers The assumption is that consumers understand complex issues.understand complex issues.

• Risks may not be known or knowable.Risks may not be known or knowable.

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3. 3. Libertarian View Libertarian View (5/7)(5/7) [241-45][241-45] • Business vs. civil servants.Business vs. civil servants.

– Not the managers job to act in the social Not the managers job to act in the social interest / We elect people to do this job.interest / We elect people to do this job.

– Who are managers to self select Who are managers to self select themselves to do this job.themselves to do this job.

– Managers are effectively imposing a tax Managers are effectively imposing a tax (or spending monopoly profits.(or spending monopoly profits.

– Flaws in the argument:Flaws in the argument:• May be better to have Powerful May be better to have Powerful

organizations influenced by organizations influenced by both Voice & Exit (Hirschman).both Voice & Exit (Hirschman).

• Do you really want big Do you really want big government doing it all.government doing it all.

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3. 3. Libertarian View Libertarian View (6/7)(6/7) [241-45][241-45] • The ‘suicidal impulse’ of business.The ‘suicidal impulse’ of business.

– To undertake CSR is to cut one’s To undertake CSR is to cut one’s competitive position. competitive position.

– This would violate managers’ obligation This would violate managers’ obligation to shareholders.to shareholders.

• Freedom vs. conformity.Freedom vs. conformity.– Notion that CSR compels those in an Notion that CSR compels those in an

otherwise free market to undertake acts otherwise free market to undertake acts they would not otherwise take on.they would not otherwise take on.

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3. 3. Libertarian View Libertarian View (7/7)(7/7) [241-45][241-45] • The expertise of businessThe expertise of business

– What do managers know about address-What do managers know about address-ing social issues, let experts handle it.ing social issues, let experts handle it.

– Flaws in the argument:Flaws in the argument:• You can learn.You can learn.• We expect you to We expect you to

have broad knowledge.have broad knowledge.• New expertise can be New expertise can be

bought (computers). bought (computers).

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4. 4. An Opposing View An Opposing View (1/4)(1/4)

• Promissory argument Promissory argument [246][246]

– The idea that managers made a promise The idea that managers made a promise to shareholders to maximize profit.to shareholders to maximize profit.

– Flaws in the argument:Flaws in the argument:• Few shareholders directly purchased Few shareholders directly purchased

shares from the company.shares from the company.• In many cases employees & communities In many cases employees & communities

have a larger ‘investment’ in the firm.have a larger ‘investment’ in the firm.• Why, under such circumstances, would Why, under such circumstances, would

shareholders hold primacy?shareholders hold primacy?

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4. 4. An Opposing View An Opposing View (2/4)(2/4) • Agency argument Agency argument [247][247]

– The notion that managers, as agents of The notion that managers, as agents of the shareholders, must profit maximize.the shareholders, must profit maximize.

– Flaws in the argument:Flaws in the argument:• Again, employees & communities have a Again, employees & communities have a

larger ‘investment’ in the firm.larger ‘investment’ in the firm.• As agents, managers have wide discretion As agents, managers have wide discretion

to pursue acts that may include CSR to to pursue acts that may include CSR to insure in the company’s long term health.insure in the company’s long term health.

• Who says shareholders, as principles, Who says shareholders, as principles, only want profit maximization.only want profit maximization.

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4. 4. An Opposing View An Opposing View (3/4)(3/4) • Role argument Role argument [247][247]

– CSR means that managers are over-CSR means that managers are over-stepping their role.stepping their role.

– Flaws in the argument:Flaws in the argument:• If you reduced pollution more If you reduced pollution more

than the law required would than the law required would courts say you could not?courts say you could not?

• Other issues of the best Other issues of the best public interest. public interest.

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4. 4. An Opposing View An Opposing View (4/4)(4/4) • Polestar argument Polestar argument [248][248]

– Easiest & obvious guide to managers’ Easiest & obvious guide to managers’ actions (moral decisions are difficult). actions (moral decisions are difficult).

– Notion that managers need a guide that Notion that managers need a guide that logically gives primacy to shareholders.logically gives primacy to shareholders.

– Flaw in the argument:Flaw in the argument:• Just because moral judgments Just because moral judgments

are inherently difficult does not are inherently difficult does not mean that they mean that they do notdo not need to be need to be made.made.

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5. 5. The Managerial View The Managerial View (1/2)(1/2) • Scientific Management.Scientific Management.

– Our job is to improve performance.Our job is to improve performance.

• Corp.Corp. Internal decision structure. Internal decision structure.– Inward looking hierarchical Inward looking hierarchical (Mechanistic)(Mechanistic). .

• Narrow definition of s-holders.Narrow definition of s-holders.• The explicit social contract.The explicit social contract.

– Material advancement for discretion. Material advancement for discretion.

• Moral Agency.Moral Agency.– Is only possible for real live humans.Is only possible for real live humans.

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5. 5. The Managerial View The Managerial View (2/2)(2/2) • Managerial managers.Managerial managers.

– Neither transforming nor servant.Neither transforming nor servant.

• Pre-NIMBY.Pre-NIMBY.– Corporate influence.Corporate influence.

– The company owned town.The company owned town.

• Stakeholders.Stakeholders.– Inequality.Inequality.

• Legal regulation is sufficient.Legal regulation is sufficient.• Tolerance of imperfect competition.Tolerance of imperfect competition.

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6. 6. The Stakeholder View The Stakeholder View (1/4) (1/4) [246-75][246-75] • New view of moral agency.New view of moral agency.

– Top Management Teams & Boards have Top Management Teams & Boards have the ability to be moral agents.the ability to be moral agents.

– These folks also are charged with These folks also are charged with developing & maintaining corp. culture. developing & maintaining corp. culture.

• Corp.Corp. Internal decision structure. Internal decision structure.– Strategic exchange in- / out- ward focus Strategic exchange in- / out- ward focus

(Organic / Corp Culture argument)(Organic / Corp Culture argument)..

• Wider definition of s-holders. Wider definition of s-holders.

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6. 6. The Stakeholder View The Stakeholder View (2/4) (2/4) [246-75][246-75] • Avoiding ‘tragedy of the commons.’Avoiding ‘tragedy of the commons.’

– Reducing the spoiling of the air & water. Reducing the spoiling of the air & water.

• Equitable sharing of costs.Equitable sharing of costs.– Internalization of externalities. Internalization of externalities.

• The implicit social contract.The implicit social contract. – Broad concern in exchange for profit. Broad concern in exchange for profit.

• Persons as ‘ends unto themselves.’Persons as ‘ends unto themselves.’

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6. 6. The Stakeholder View The Stakeholder View (3/4) (3/4) [246-75][246-75] • Solidarity & social-mindedness.Solidarity & social-mindedness.

• Co-op capitalism.Co-op capitalism.– Cooperative movesCooperative moves

• Social auditSocial audit– Numerous different stakeholders with Numerous different stakeholders with

differing views of performance.differing views of performance.– Looking at multiple bottom lines.Looking at multiple bottom lines.

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6. 6. The Stakeholder View The Stakeholder View (4/4) (4/4) [246-75][246-75] • Altruistic vs. selfish motives? Altruistic vs. selfish motives?

– At least a balance of interest.At least a balance of interest.

• Social efficiency.Social efficiency.– What does it mean to say that the What does it mean to say that the

corporation provides value. corporation provides value.

• Ethical codes. Ethical codes. – One critical step toward establishing an One critical step toward establishing an

ethical corporate culture.ethical corporate culture.– Be careful, the courts may hold you to it. Be careful, the courts may hold you to it. – They’re only as good as the leadership.They’re only as good as the leadership.

7. Johnson & Johnson’s Credo 7. Johnson & Johnson’s Credo (1/4) (1/4)

We believe our 1We believe our 1stst responsibility is to responsibility is to doctors, nurses & patients,doctors, nurses & patients,to mothers and fathers and all others who use to mothers and fathers and all others who use our products and services. our products and services. In meeting their needs everything we do In meeting their needs everything we do must be of high quality.must be of high quality.We must constantly strive to reduce our costs We must constantly strive to reduce our costs in order to maintain reasonable prices.in order to maintain reasonable prices.Customer’s orders must be Customer’s orders must be serviced promptly and accurately. serviced promptly and accurately. Our suppliers & distributors must have Our suppliers & distributors must have

an opportunity to make a fair profit.an opportunity to make a fair profit.

We believe our 1We believe our 1stst responsibility is to responsibility is to doctors, nurses & patientsdoctors, nurses & patients,,to to mothers mothers and fathers and fathers and all othersand all others who use who use our products and services. our products and services. In meeting their needs everything we do In meeting their needs everything we do must be of must be of high qualityhigh quality..We must constantly strive to reduce our costs We must constantly strive to reduce our costs in order to in order to maintain reasonable pricesmaintain reasonable prices..Customer’sCustomer’s orders must be orders must be serviced promptly and accuratelyserviced promptly and accurately. . Our Our suppliers & distributorssuppliers & distributors must have must have

an opportunity to an opportunity to make a fair profitmake a fair profit..

7. Johnson & Johnson’s Credo 7. Johnson & Johnson’s Credo (2/4) (2/4)

We are responsible to our We are responsible to our employeesemployees, the men & , the men & women who work with us throughout the world.women who work with us throughout the world.Everyone must be Everyone must be considered an individualconsidered an individual. We . We must must respect theirrespect their dignitydignity & & recognizerecognize theirtheir meritmerit..They must have a sense of They must have a sense of security in their jobssecurity in their jobs..Compensation must be fairCompensation must be fair & adequate & & adequate & working conditions clean, orderly and safe. working conditions clean, orderly and safe. Employees must feel free to Employees must feel free to make suggestionsmake suggestions & & complaints. complaints. ThereThere mustmust bebe equalequal opportunityopportunity forfor employment, employment, development & advancement for those qualified.development & advancement for those qualified.We must provide We must provide competent managementcompetent management, and , and their actions must be just and ethicaltheir actions must be just and ethical

7. Johnson & Johnson’s Credo 7. Johnson & Johnson’s Credo (3/4) (3/4)

We are responsible to the communities in which we live & work and to the world community as well.We must be good citizens - support good works & charities and bear our fair share of taxes.We must encourage civic improvements and better health and education.We must maintain in good order the property we are privileged to use, protecting the environment & natural resources.

7. Johnson & Johnson’s Credo 7. Johnson & Johnson’s Credo (4/4) (4/4)

Our final responsibility is to our Our final responsibility is to our stockholdersstockholders..Business must make a sound Business must make a sound profitprofit..We must experiment with new ideas. We must experiment with new ideas. ResearchResearch must be carried on, innovative programs must be carried on, innovative programs developed and developed and mistakes paid formistakes paid for..New equipmentNew equipment must be purchased, new must be purchased, new facilities provided and new products launched.facilities provided and new products launched.Reserves Reserves must be created to provide must be created to provide for adverse times.for adverse times.When we operate according to When we operate according to these principles, the stockholders these principles, the stockholders should should earn a fair returnearn a fair return..

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8. 8. Clash of the Three Visions Clash of the Three Visions Libertarian, Managerial, StakeholderLibertarian, Managerial, Stakeholder

• The social duty of philanthropy.The social duty of philanthropy.• Implicit social contract.Implicit social contract.

– Written and unwritten laws. Written and unwritten laws. – Interpretation.Interpretation.– Global impact.Global impact.

• ‘‘Narrow’ stakeholder capitalism.Narrow’ stakeholder capitalism.– Primary stakeholders.Primary stakeholders.

• ‘‘Wide’ Stakeholder capitalism.Wide’ Stakeholder capitalism.– Secondary & tertiary stakeholders.Secondary & tertiary stakeholders.

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9.9. Alternatives to C.S.R. Alternatives to C.S.R.

• Legal Regulation (Command & Control?)Legal Regulation (Command & Control?)

• Taxation (Pollution Tax)Taxation (Pollution Tax)

• Legal Liability (We will be sued!)Legal Liability (We will be sued!)

• Ethical Codes (Professions: Ethical Codes (Professions: Legal / MedicalLegal / Medical))

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Midterm

• Short Answer: 8 questions 7% each.Short Answer: 8 questions 7% each.

• Multiple Choice 44 questions 1% each.Multiple Choice 44 questions 1% each.

• Some names to remember.Some names to remember.– JonesJones ―― Milgram Milgram– Kohlberg Kohlberg ― ― Mintzberg Mintzberg – Lindblom Lindblom ―― Rest Rest– Machiavelli Machiavelli ―― Zimbarto Zimbarto

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