Crane and Matten

Business Ethics (3rd Edition)

Chapter 2

Framing Business Ethics:

Corporate Responsibility, Stakeholders, and Citizenship

Lecture 2

Overview
Analyse the notion of responsibility for
corporations;
Distinguish the various concepts of CSR;
Present the stakeholder theory of the firm;
Outline the concept of corporate accountability;
Critically examine the notion of corporate
citizenship;
Discuss implications of these mostly US-born
concepts for different regions

Towards a framework for business

ethics
What is a corporation?

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 Friedmans 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)

Corporate Social Responsibility

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)

Carrolls four-part model of corporate

social responsibility
Desired by society
Philanthropic
Responsibilities
Ethical
Responsibilities
Legal
Responsibilities

Expected by society
Required by society
Required by society

Economic
Responsibilities
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

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 organizations 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

Shareholders

Customers

Firm

Suppliers

Employees

Stakeholder theory of the firm

Competitors

Governmen
t

Customers

Shareholders

Firm
Suppliers

Civil
society

Employees

Stakeholder theory of the firm:

A network model
Customer
stakeholder
1

Competitors

Government

Customers

Shareholders
Firm
Suppliers

Employees
Civil society

Supplier
stakeholder
1

Civil society
stakeholder
2

Civil society
stakeholder
1

Customer
stakeholder
3
Employee
stakeholder
1
Employee
stakeholder
2

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 democracy
Corporate governance

Stakeholder thinking in an
international context
One could argue that although the
terminology of stakeholder theory is
relatively new in places like Europe or Asia,
the general principles have actually been
practised for some time:
German supervisory board includes employee
representatives
Keiretsu system in Japan (Chaebol in Korea), a
network of banks, manufacturers, suppliers and
service providers

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

Corporate accountability
The firm as a political actor

Corporate accountability
Corporate accountability refers to whether
a corporation is answerable in some way for
the consequences of its actions
Firms have begun to take on the role of
political actors taken up many of the
functions previously undertaken by
government because:
Governmental failure
Increasing power and influence of corporations

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

Corporate citizenship

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
Company
BHP
Billiton

Industry &
origin
Mining,
Australia

CC statement (emphasis added)

Source

The Companys community investment programs should create sustainable,

long-term value for our host communities and demonstrate the Companys
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.

Sustainability
Report, 2008

Citibank

Banking &
financial
services, USA

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.

2007 Citizenship
Report

Microsoft

Software, USA

Microsofts 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 Microsofts global corporate
citizenship values help guide our efforts to achieve greater accountability and
drive continuous improvement of our business practices.

Citizenship
Report 2009

Total

Oil & gas,

France

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.

Toyota

Automobiles,
Japan

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.

CSR Report,
2007

Sustainability
Report, 2008

Three views of corporate citizenship

Limited view

Equivalent view

Extended view

Focus

Philanthropy, focused on
projects, limited scope

All areas of CSR

Citizenship: social, political and

civil rights

Main
stakeholder
group

Local communities,
employees

Broad range of stakeholders

Broad range of citizens; society

in general

Motivation

Primarily philanthropic;
also economic where
citizenship is strategic

Mixed economic, legal,

ethical, philanthropic

Political

Moral
grounding

Reciprocity, i.e. putting

something back

Duty to be responsible and

avoid harms to society

Grounding is not moral, but

comes from changes in the
political arena

An extended view of CC
Corporate citizenship
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

Assessing corporate citizenship as a

framework for business ethics
Extended view of CC adds something significant
that helps us frame business ethics in new ways:
Helps us better see the political role of the corporation
Clarifies the demand for corporate accountability
Helps to understand business in relation to common
citizenship rights within different cultures and some of the
challenges posed by globalization
The rights of citizenship have strong links to the goal of
sustainability
Provides a critical perspective on corporations social role
that is more in keeping with non-US ways of thinking
about business ethics

Summary
Business ethics is related to the social role of the
corporation
Confining corporations to commercial activities
too limited
Different perspectives and their relevance in
European context
CSR
Stakeholder theory
Corporate accountability

Effects of globalization on role of corporation

Corporate citizenship is latest concept in the field