MBA Banking Lecture 6&7.pptx

7/27/2019 MBA Banking Lecture 6&7.pptx

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2013-2014Lecture 6 & 7

MBA- Banking


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Companies

makes

significantcontribution

to addressing

poverty,

exclusion and

environmental degradation

through

trade.

Believes in

bothcorporate as

3rd Generation

Companies,

and

industries seeCSR as an

integral part

of business

strategy

2nd

Generation

Companies

contributing

out of theirown free will

towards

charity or

corporate

philanthropyto address

social,

economic &

other issues

1ST

Generation


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NGO activism

Investor

pressure

Demand for

increaseddisclosure

FDI

Rising customerInterest ( domestic& international)

Responsible InvestmentIncreasing supply-chainresponsibility

Litigation


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Why should managers look at the theoreticalpropositions in CSR?


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Friedmans Theory ( Stockholder)

Social Contract Theory Deontological Theory

Rights TheorySocial Justice

Carnegie Theory

Stakeholder

Theory

Trusteeship

Theory

Keith Davis

Tom CannonTheoretical Premise

of CSR


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The only social responsibility ofbusiness to use its resources and

engage in activities designed to

increase its profits for it

stockholders


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The Social Responsibility of Business is toincrease its profits

The Underlying Ethical principle: Manager hasFiduciary Responsibilityto Owners


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provide employment

eliminate discrimination

avoid pollution help the community

make life better for workers


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To think business should do anything otherthan make a profit is to preach socialism andundermine free society.


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Businesses cannot have responsibility,because only people can haveresponsibilities.


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Executive has obligation to stockholders a corporate executive is an employee of theowners of the business. He has a direct

responsibility to his employers. That

responsibility is to conduct the business inaccordance with their desires, which generallywill be to make as muchmoney aspossible


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while conforming to thebasic rules of thesociety, both those embodied in law andthose embodied in ethical custom.Manager has obligation to the

Law

Ethical Custom


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Social responsibilities of the executive:Family, conscience, feelings of charity,church, clubs, city, country

Fiduciary responsibility: To make money forstockholders


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He must act as an agent of thestockholders, not society ingeneral.
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No way for Executive to know how to solvesocial illsthats not his expertise!


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Majority speaks through the law. Dontundermine or circumvent democracy byimposing ones views on other peoplesmoney-use via subversive private tax


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If Companies give money to good causesbecause it gives them good Public Relations,then count it as advertising and dont pretendit is done for the sake of charity. The

Windowdressing/cloak of social-responsibility is a lie and a sham whichundermines free society.


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Freidman thinks firms ought to maximizetheir profits (they have social obligation to doso) Becauseprofit really represents the netcontribution that the firm makes to the social

good and the profits should therefore bemade as large as possible.


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Freidman also assumes natural constraints ofthe market will help keep companies incheck. i.e., if a company is known to bedishonest or terrible to their employees, then

consumers will not buy from that company!


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It assumes that forces of competition aresufficiently vigorousbut they arent.

Government regulations are essential to forcecompanies to act in an ethical manner. Suchregulations direct the market towards ethicalbehavior.


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Distribution of income that results fromunrestrained profit maximization is veryunequal.

( Differences of Income Levels)


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Maximizing profits is socially inefficient whencosts are not paid

Examples: pollution

traffic congestion

No taxes poorly educated workforce


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Maximizing profits is socially inefficient whenseller has great knowledge advantage overbuyer


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Resistant to change:dangerous to rely

simply on

stockholder

satisfaction

Not consistent withthe law: law doesnot simply uphold

stockholders rights

Usually ignoresethics: the

Separation Fallacy:businessdecision vs

ethicaldecision


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The Social Contract Theory account ofcorporate social responsibility has its rootsin a broader political theory. Responsibilities and rights of individuals

grounded in a hypothetical contract betweenmembers of society.

Expanding on this notion, people havesuggested that the moral responsibility ofbusinesses are similarly rooted in acontract between them and society.


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The benefits of business (especiallycorporations) to society are well recognized. Accumulation of capital; distribution of risk; jobs.

The potential costs are also obvious. Resource depletion; political corruption;

concentration of wealth; threats to democracy.

A contract is the best way to understandthe tradeoffs between these benefits and

risks Takes the form of specific principles which guide

behavior of all parties to the contract.


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The iron law of responsibility refers to thenegative consequences of the absence ofuse of power.

Whoever does not use his social powerresponsibly will lose it. In the long runthose who do not use power in a mannerwhich society considers responsible will

tend to lose it because other groupseventually will step in to assume thoseresponsibilities


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Deontological theory deals with the beliefthat everyone, including corporate managers,has a moral duty to treat everyone else withrespect, including listening and considering

their needs.


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Deontologyis the branch of moral philosophy thatconcentrates on duties or moral obligationsitputs the responsibility in corporate socialresponsibility.

If an action does (does not) fulfill one's duties, thenthe action is (is not) an ethical one.

The two major deontological frameworks are:

1. The theory of rights, concerned with individualsmoral rights and the duties/responsibilitiesof moralagents to respect and protect those rights, and

2. The theory of justice, dealing with fairness and equityin decision making.


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Groups: civil, political rights economic, social, cultural rights group rights

Features: inherence in human beings universal

inalienable


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Civil and Political RightsFreedom from discrimination (UDHR Article 2)

Right to life and to liberty and security of person (UDHR Article 3)

Freedom from forced labour/ servitude (UDHR Article 4)

Freedom from torture, cruel, inhuman or degrading treatment

or punishment (UDHR Article 5)

Right to a fair trial and to recognition as a person

before the law (UDHR Articles 6, 7, 10, 11)

Right to privacy (UDHR Article 12)

Freedom of movement (UDHR Article 13)

Freedom of opinion, expression, thought, conscience and

religion (UDHR Articles 18, 19)

Right to take part in government (UDHR Article 21)

Right to peaceful assembly and freedom of association

(UDHR Articles 20, 23(4))

Economic, Social and Cultural Right

Right to family life (UDHR Article 16)

Right to own property (UDHR Article 17)

Right to work and to just and favourable conditions atwork

(UDHR Articles 23, 24, 25)

Right to an adequate standard of living (UDHR Articles22, 25)

Right to adequate health (UDHR Article 25)

Right to adequate housing (UDHR Article 25)

Right to adequate food (UDHR Article 25)

Right to education (UDHR Article 26)

Right to participate in cultural life (UDHR Article 27)

Right to intellectual property (UDHR Article 27(2))

Universal Human Rights

Group RightsRight to development

Right to c lean environment


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Repressive regimes


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Rights theory, is concerned with themeaning of rights, including basic humanrights and property rights.

One argument in rights theory is that

property rights should not override humanrights. This means that while shareholdersof a corporation have certain propertyrights, this does not give them license to

override the basic human rights ofemployees, local community members, andother stakeholders


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Social justice theory, focuses on fairness and

distributive justice how, and according towhat principles, societys goods (here

meaning wealth, power, and otherintangibles) are distributed amongst themembers of society.


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Justice: Consists in giving each person his or her due, treating

equals equally and unequals unequally

Distributive Procedural

Compensatory

Retributive


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Legendary steel tycoon - Advocates benevolent, paternalistic

leadership Enunciated

Charity principle & Stewardship principle-thebusiness of benevolence"

He believed in the "Gospel of Wealth," which meantthat wealthy people were morally obligated to givetheir money back to others in society.


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Wanted capitalists to act as trustees (notowners) of their property and conductthemselves in a socially responsible way.

Gandhi's theory of trusteeship is based on

two basic premises A) The rich cannot accumulate wealth

without the cooperation of the poor.

B) Western socialism and communism arenot the last words on the question ofmass poverty.


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"Believing as he did in non-violence, Gandhi

was against the physical liquidation of thecapitalists and landlords. Yet their exploitationhad to end. This he believed could be done ifthe landlords and the capitalists acted astrustees of the poor.

His doctrine of Trusteeship is designed to workin all spheres of life. Like parents acting astrustees for their children, the government

should act as trustees of those who havechosen them to be their representatives in thelegislative assemblies. The trustee, by itsimplications, meant that he is not the owner.


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The theory of trusteeship as an alternative tocapitalism and scientific socialism. He was opposedto the western capitalism, which necessarily leadsto oppression, exploitation, concentration ofwealth and inequality.

At the same time, he was against an increase in thepower of the state which, in his opinion, isessentially based on violence.

Gandhi, wanted to provide the institution oftrusteeship as a compromise between privateenterprise and state controlled enterprise.


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Managing for stakeholders is aboutcreating as much value as possible forstakeholders, without resorting totradeoffs.

The basic idea is that businesses, andthe executives who manage them,actually do and should create value forcustomers, suppliers, employees,communities, and financiers (orshareholders). And, that we need to paycareful attention to how theserelationships are managed and how valuegets created for these stakeholders.


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To create value for stakeholders, executivesmust understand that business is fullysituated in the realm of humanity. Businessesare human institutions populated by real live

complex human beings.


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Enlightened self interestIt is in organisations interest to act in

ways that society considers responsible.

Iron law of responsibilityThose who do not exercise power

responsibly will tend to loose it


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Cannons views With the advent of the Joint Stock

Company, society or state provides to

business, two special rightsPotential immortality

Limited Liability

Business does have social responsibility tofulfill in return for these privileges.


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Tom CannonBusiness provides

Products & services

Direct & indirect

employment

Income generation

Society provides

Means of exchange

Trained manpower

Legal & banking

system Social & physical

infra-structure


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Desired by the Society

Expected by Society

Required

By the Society


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Philanthropic Model Statist Model ( State Intervention)

Liberal Model ( Friedman Model)

Stakeholder Model ( Freeman Model)


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Principles of SR1. Ethical behaviour 2. Respect for rule of law

3. Respect for international norms of behaviour

4. Respect for and considering of stakeholder interests5. Accountability 6. Transparency

7. Precautionary approach 8. Respect for human rights

OrganizationalGovernance

HumanR

ights

LabourPractises

Environment

Fairoperatingpractises

Consumerissues

Community

&society

development

Core Subjects Implementing SR

7.2Defining scope

7.5Implementing in daily practise

7.7Evaluating performance

7.8Enhancing credibility

7.4Integrating into organization

7.3 Working With Stakeholders

7.3 Communicating

How Does CSR benefit


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How Does CSR benefit

Business

Reputation

Loyal Employees

&Customers

Less Law Suits

Less MediaHarassment

Access to

Capital

ImprovesImproves

ProductivityCommunity

GoodwillBetter

MBA Banking Lecture 6&7.pptx

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