Corporate Responsibility, Stakeholders & Corporate Citizenship

Key features of a corporation

• A corporation is essentially defined in terms of legal status and the ownership of assets

• Corporations are typically regarded as ‘artificial persons’ in the eyes of the law

• Corporations are notionally ‘owned’ by shareholders, but exist independently of them

• Managers and directors have a ‘fiduciary’ responsibility to protect the investment of shareholders

Can a corporation have social responsibilities?

• Milton Friedman’s classic article is “The social responsibility of business is to increase its profits” (1970)

• Friedman vigorously argued against the notion of social responsibilities for corporations based on three main arguments:– Only human beings have a moral responsibility for

their actions– It is managers’ responsibility to act solely in the

interests of shareholders– Social issues and problems are the proper

province of the state rather than corporate managers

Can a corporation be morally responsible for its actions?

• Evidence to suggest that legal designation of a corporation makes it unable to be anything but self-interested (Bakan 2004)

• Long, complex debate but generally support from literature for some degree of responsibility accredited to corporations. Argument based on:– Every organisation has a corporate internal decision

structure which directs decisions in line with predetermined goals (French 1979)

– All organisations manifest a set of beliefs and values that lay out what is generally regarded as right or wrong in the corporation – organizational culture (Moore 1999)

Why do corporations have social responsibilities?

• Business reasons (‘enlightened self-interest’) – Extra and/or more satisfied customers– Employees may be more attracted/committed– Forestall legislation– Long-term investment which benefits corporation

• Moral reasons:– Corporations cause social problems– Corporations should use their power responsibly– All corporate activities have some social impacts– Corporations rely on the contribution of a wide set of

stakeholders in society, not just shareholders

What is the nature of corporate social responsibilities?

Corporate social responsibility includes the economic, legal, ethical, and philanthropic expectations placed on organizations by society at a given point in time

(Carroll and Buchholtz 2009:44)

Carroll’s four-part model of corporate social responsibility

PhilanthropicResponsibilities

EthicalResponsibilities

LegalResponsibilities

EconomicResponsibilities

Desired by society

Required by society

Expected by society

Required by society

Source: Carroll (1991)

CSR in an international context

• CSR strong in US. Influence elsewhere is more recent. This is partly explained by explicit vs. implicit CSR

• Regional differences exist with respect to all CSR levels:– Economic responsibility

• Focus in USA on shareholders; France has extensive responsibility for employees; India has tradition of investment in the local community

– Legal responsibility• State seen in Europe as key enforcer of rules; elsewhere government seen

with more scepticism (e.g. corrupt, interfering with liberty)

– Ethical responsibility• Wide range of local ethical values & preferences: expectations vary

– Philanthropic responsibility• Europe tends to compel giving via legal framework; elsewhere (e.g., USA,

India, China), companies are expected to share their wealth.

CSR and strategy: corporate social responsiveness

• Corporate social responsiveness refers to the capacity of a corporation to respond to social pressures (Frederick 1994)

• 4 ‘philosophies’ or strategies of social responsiveness (Carroll 1979)– Reaction– Defence– Accommodation– Proaction

Outcomes of CSR: corporate social performance

• Outcomes delineated in three concrete areas:– Social policies– Social programmes– Social impacts

Stakeholder theory of the firm

• Theory developed by Edward Freeman (1984)• A stakeholder of an organization is:

– …any group or individual who can affect, or is affected by, the achievement of the organization’s objectives (Freeman 1984:46)

• More precise definition of ‘affects’ and ‘affected by’ (Evan and Freeman 1993)– Principle of corporate rights - the corporation has

the obligation not to violate the rights of others– Principle of corporate effect – companies are

responsible for the effects of their actions on others

Stakeholder theory of the firm:Traditional management model

Firm

Shareholders

EmployeesSuppliers

Customers

Stakeholder theory of the firm

Firm

Shareholders

EmployeesSuppliers

Customers

Civilsociety

CompetitorsGovernment

Stakeholder theory of the firm:A network model

Firm

Shareholders

Supplier stakeholder

1

Suppliers

Customers

Civil society

CompetitorsGovernment

Employees

Civil society stakeholder

2

Civil society stakeholder

1

Employee stakeholder

2

Employee stakeholder

1

Customer stakeholder

1

Customer stakeholder

3

Why stakeholders matter

• Milton Friedman – businesses should only be run in the interests of their owners

• Freeman - others have a legitimate claim on the corporation– Legal perspective

• ‘Stake’ in corporation already protected legally in some way (e.g. legally binding contracts)

– Economic perspective• Externalities – outside contractual relationships• Agency problem – short term interests of ‘owners’ vs. long

term interests of managers, employees, customers etc.

A new role for management

• According to Freeman, this broader view of responsibility towards multiple stakeholders assigns a new role to management.

• Rather than simply being agents of shareholders, management has to take into account the rights and interests of all legitimate stakeholders:– Stakeholder democracyStakeholder democracy– Corporate governanceCorporate governance

Different forms of stakeholder theory

• Donaldson & Preston (1995):– Normative stakeholder theory: attempts to

provide a reason why corporations should take into account stakeholder interests

– Descriptive stakeholder theory: attempts to ascertain whether (and how) corporations actually do take into account stakeholder interests

– Instrumental stakeholder theory: attempts to answer the question of whether it is beneficial for the corporation to take into account stakeholder interests

Reasons for the political role of the firm

• Government failure– Risk society thesis

• Rise of ‘subpolitics’• ‘Organized irresponsibility’

• Corporate power on the rise– Liberalization and deregulation results in more power

and choice for private actors– Privatization of ‘public’ services– Responsible for employment decisions– Globalization– Governments increasingly encourage self-regulation

The problem of democratic accountability

• Who controls corporations?• To whom are corporations accountable?• Key to corporate accountability is

transparency• Transparency is the degree to which

corporate decisions, policies, activities and impacts are acknowledged and made visible to relevant stakeholders

Defining corporate citizenship: three perspectives

• A limited view of CC– this essentially equates CC with corporate

philanthropy

• An equivalent view of CC– this essentially equates CC with CSR

• An extended view of CC– this acknowledges the extended political role of

the corporation in society

Commitments to corporate citizenship

Oil & gas, France

Mining, Australia

Banking & financial services, USA

Software, USA

Company Source

BHP Billiton

Microsoft

Toyota

Citibank

CC statement (emphasis added)Industry & origin

Sustainability Report, 2008

… The Company’s community investment programs should create sustainable, long-term value for our host communities and demonstrate the Company’s citizenship. The critical question in regard to our success is whether we have managed to leave a lasting positive legacy in the communities where we operate.

2007 Citizenship Report

We define citizenship as the positive impact that Citi has on society and the environment through its core business activities, philanthropy, diversity efforts, volunteerism and public policy engagement, as well as the philanthropic initiatives undertaken by the Citi Foundation.

CSR Report, 2007

Sustainability Report, 2008

Total is committed to contributing to the sustainable development of host communities around the world. In addition to being a normal part of good corporate citizenship, this policy fosters good relationships with neighbors and greater acceptance of our operations.

Total

Automobiles, Japan

Citizenship Report 2009

The Corporate Citizenship Division was organized in January 2006 as a specialized division to reinforce corporate social contribution activities and integrate corporate social contribution functions that had been performed by multiple divisions.

Microsoft’s endorsement of the UN Global Compact signifies that we are committed to aligning our business operations and strategies with 10 established principles […] Principles – which correspond with Microsoft’s global corporate citizenship values – help guide our efforts to achieve greater accountability and drive continuous improvement of our business practices.

Three views of corporate citizenship

Reciprocity, i.e. ‘putting something back’

Philanthropy, focused on projects, limited scope

Local communities, employees

Primarily philanthropic; also economic where citizenship is ‘strategic’

Extended view

Focus

Motivation

Moral grounding

Main stakeholder group

Equivalent viewLimited view

Citizenship: social, political and civil rights

All areas of CSR

Broad range of citizens; society in general

Broad range of stakeholders

PoliticalMixed – economic, legal, ethical, philanthropic

Grounding is not moral, but comes from changes in the political arena

Duty to be responsible and avoid harms to society

An extended view of CC

Social role of the corporation in governing citizenship

Social rights corporation as provider/ignorer

Civil rights corporation as dis-/enabler

Political rights corporation as channel/blockage

Corporate citizenship