2013-2014 Lecture 6 & 7 MBA- Banking

1ST Generation
Companies contributing out of their own free will towards charity or corporate philanthropy to address social, economic & other issues

2nd Generation
Companies, and industries see CSR as an integral part of business strategy

3rd Generation
Companies makes significant contribution to addressing poverty, exclusion and environmenta l degradation through trade. Believes in both corporate as

NGO activism Litigation Demand for increased disclosure Investor pressure Increasing supply-chain responsibility FDI

Rising customer Interest ( domestic & international)

Responsible Investment

Why should managers look at the theoretical propositions in CSR?

Keith Davis Tom Cannon

Theoretical Premise of CSR

Carnegie Theory
Stakeholder Theory Trusteeship Theory Rights Theory

Social Justice

Social Contract Theory

Deontological Theory

Friedmans Theory ( Stockholder)

The only social responsibility of business to use its resources and engage in activities designed to increase its profits for it stockholders

The Social Responsibility of Business is to increase its profits The Underlying Ethical principle: Manager has Fiduciary Responsibility to Owners

provide employment eliminate discrimination avoid pollution help the community make life better for workers

To think business should do anything other than make a profit is to preach socialism and undermine free society.

Businesses cannot have responsibility, because only people can have responsibilities.

Executive has obligation to stockholders a corporate executive is an employee of the owners of the business. He has a direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible

while conforming to the basic rules of the society, both those embodied in law and
those embodied in ethical custom. Manager has obligation to the Law Ethical Custom

Social responsibilities of the executive: Family, conscience, feelings of charity, church, clubs, city, country Fiduciary responsibility: To make money for stockholders

He must act as an agent of the stockholders, not society in general.

No way for Executive to know how to solve social illsthats not his expertise!

Majority speaks through the law. Dont undermine or circumvent democracy by imposing ones views on other peoples money-use via subversive private tax

If Companies give money to good causes because it gives them good Public Relations, then count it as advertising and dont pretend it is done for the sake of charity. The Windowdressing/cloak of socialresponsibility is a lie and a sham which undermines free society.

Freidman thinks firms ought to maximize their profits (they have social obligation to do so) Because profit really represents the net contribution that the firm makes to the social good and the profits should therefore be made as large as possible.

Freidman also assumes natural constraints of the market will help keep companies in check. i.e., if a company is known to be dishonest or terrible to their employees, then consumers will not buy from that company!

It assumes that forces of competition are sufficiently vigorousbut they arent. Government regulations are essential to force companies to act in an ethical manner. Such regulations direct the market towards ethical behavior.

Distribution of income that results from unrestrained profit maximization is very unequal. ( Differences of Income Levels)

Maximizing profits is socially inefficient when costs are not paid Examples:
pollution traffic congestion No taxes poorly educated workforce

Maximizing profits is socially inefficient when seller has great knowledge advantage over buyer

Resistant to change: dangerous to rely simply on stockholder satisfaction

Not consistent with the law: law does not simply uphold stockholders rights

Usually ignores ethics: the Separation Fallacy: business decision vs ethical decision

The Social Contract Theory account of corporate social responsibility has its roots in a broader political theory.
Responsibilities and rights of individuals grounded in a hypothetical contract between members of society.

Expanding on this notion, people have suggested that the moral responsibility of businesses are similarly rooted in a contract between them and society.

The benefits of business (especially corporations) to society are well recognized. The potential costs are also obvious.
Accumulation of capital; distribution of risk; jobs. Resource depletion; political corruption; concentration of wealth; threats to democracy.

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

Takes the form of specific principles which guide behavior of all parties to the contract.

The iron law of responsibility refers to the negative consequences of the absence of use of power. Whoever does not use his social power responsibly will lose it. In the long run those who do not use power in a manner which society considers responsible will tend to lose it because other groups eventually will step in to assume those responsibilities

Deontological theory deals with the belief that everyone, including corporate managers, has a moral duty to treat everyone else with respect, including listening and considering their needs.

Deontology is the branch of moral philosophy that

concentrates on duties or moral obligationsit puts the responsibility in corporate social responsibility. If an action does (does not) fulfill one's duties, then the action is (is not) an ethical one. The two major deontological frameworks are: 1. The theory of rights, concerned with individuals moral rights and the duties/responsibilities of moral

agents to respect and protect those rights, and 2. The theory of justice, dealing with fairness and equity in decision making.

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

Groups:

inherence in human beings universal inalienable

Features:

Universal Human Rights

Civil and Political Rights
Freedom from discrimination (UDHR Article 2) Right to family life (UDHR Article 16)

Economic, Social and Cultural Rights

Right to life and to liberty and security of person (UDHR Article 3) Right to own property (UDHR Article 17) Freedom from forced labour/ servitude (UDHR Article 4) Right to work and to just and favourable conditions at work Freedom from torture, cruel, inhuman or degrading treatment or punishment (UDHR Article 5) Right to a fair trial and to recognition as a person (UDHR Articles 23, 24, 25) Right to an adequate standard of living (UDHR Articles 22, 25) Right to adequate health (UDHR Article 25)

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))

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))

Group Rights
Right to development Right to clean environment

Repressive regimes

Rights theory, is concerned with the meaning of rights, including basic human rights and property rights. One argument in rights theory is that property rights should not override human rights. This means that while shareholders of a corporation have certain property rights, this does not give them license to override the basic human rights of employees, local community members, and other stakeholders

Social justice theory, focuses on fairness and distributive justice how, and according to what principles, societys goods (here meaning wealth, power, and other intangibles) are distributed amongst the members of society.

Justice:
Consists in giving each person his or her due, treating equals equally and unequals unequally
Distributive Procedural Compensatory Retributive

Legendary steel tycoon - Advocates benevolent, paternalistic leadership Enunciated

Charity principle & Stewardship principle-the business of benevolence" He believed in the "Gospel of Wealth," which meant that wealthy people were morally obligated to give their money back to others in society.

Wanted capitalists to act as trustees (not owners) of their property and conduct themselves 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 are not the last words on the question of mass poverty.

"Believing as he did in non-violence, Gandhi was against the physical liquidation of the capitalists and landlords. Yet their exploitation had to end. This he believed could be done if the landlords and the capitalists acted as trustees of the poor. His doctrine of Trusteeship is designed to work in all spheres of life. Like parents acting as trustees for their children, the government should act as trustees of those who have chosen them to be their representatives in the legislative assemblies. The trustee, by its implications, meant that he is not the owner.

The theory of trusteeship as an alternative to capitalism and scientific socialism. He was opposed to the western capitalism, which necessarily leads to oppression, exploitation, concentration of wealth and inequality.

At the same time, he was against an increase in the power of the state which, in his opinion, is essentially based on violence.
Gandhi, wanted to provide the institution of trusteeship as a compromise between private enterprise and state controlled enterprise.

Managing for stakeholders is about creating as much value as possible for stakeholders, without resorting to tradeoffs. The basic idea is that businesses, and the executives who manage them, actually do and should create value for customers, suppliers, employees, communities, and financiers (or shareholders). And, that we need to pay careful attention to how these relationships are managed and how value gets created for these stakeholders.

To create value for stakeholders, executives must understand that business is fully situated in the realm of humanity. Businesses are human institutions populated by real live complex human beings.

Enlightened self interest It is in organisations interest to act in ways that society considers responsible.
Iron law of responsibility Those who do not exercise power responsibly will tend to loose it

Cannons views
With the advent of the Joint Stock Company, society or state provides to business, two special rights
Potential immortality Limited Liability

Business does have social responsibility to fulfill in return for these privileges.

Tom Cannon
Business provides
Products & services Direct & indirect employment Income generation

Society provides
Means of exchange Trained manpower Legal & banking system Social & physical infra-structure

Desired by the Society Expected by Society

Required By the Society

Philanthropic Model Statist Model ( State Intervention) Liberal Model ( Friedman Model) Stakeholder Model ( Freeman Model)

Principles of SR
1. Ethical behaviour 2. Respect for rule of law 3. Respect for international norms of behaviour 4. Respect for and considering of stakeholder interests 5. Accountability 6. Transparency 7. Precautionary approach 8. Respect for human rights

Core Subjects
Organizational Governance

Implementing SR
7.3 Working With Stakeholders

7.2 Defining scope Fair operating practises Community & society development Consumer issues Labour Practises Human Rights

7.4 Integrating into organization 7.5 Implementing in daily practise 7.7 Evaluating performance 7.8 Enhancing credibility

Environment

7.3 Communicating

How Does CSR benefit Business

Less Law Suits

Less Media Harassment

Reputation Loyal Employees & Customers

Access to Capital Improves

Improves Productivity Better Environment

Community Goodwill