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Corporate Social Responsibility

(CSR)

BUSA 5200 BCIT 2013

The debate
Friedman vs. Freeman
http://www.youtube.com/watch?v=_sNKIEzYM7M

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 profitmaking entities (Milton Friedmans 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 Carrolls Pyramid of Corporate Social Responsibility

Be a good corporate citizen Be ethical Obey the law Be profitable

Philanthropic

Desired Expected Required Required

Ethical Resp.

Legal Responsibility Economic Responsibility

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 Carrolls 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 societys 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 communitys 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?cp gn=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) (todays stakeholders better-organized, harder to ignore than in past; business must respond effectively) (business requires a social license to operate)

Todays 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 dont 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 doesnt 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 Friedmans 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; dont 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?)

8. Hard to hold business accountable (there are

Counterargument

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) http://www.youtube.com/watch?v=OUG4JXE6K4A (2:30)

Ray Anderson of Interface (carpet manufacterer)

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.

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