1-3 5-3 Chapter Objectives After exploring this chapter, you will be able to: 1.Define corporate social responsibility 2.Discuss the three models of CSR 3.Discuss the challenge in identifying the object of a corporation’s responsibility. 4.Distinguish key components or elements of the term “responsibility” 5.Explain the role of reputation as one possible motivation behind CSR 6.Evaluate the claims that CSR is “good” for business
1-4 5-4 Defining “Corporate Social Responsibility” In general terms, CSR encompasses the responsibilities that businesses have to the societies within which these businesses operate. The European Commission defines CSR as “a concept whereby companies decide voluntarily to contribute to a better society and a cleaner environment.” Specifically, CSR suggests that a business identify its stakeholder groups and incorporate their needs and values within its strategic and operational decision-making process.
1-5 5-5 Why do it? Three Models by which to Define Advocates for CSR have several bases for their contentions that a business should go above and beyond the maximization of profits or at least that CSR activities contribute to that objective. The models for CSR are based in both ethics (“citizenship”) and economics, and the language used in each tends to vary. Not meant to be exclusionary nor all-encompassing; they simply assist us in discussing areas of differentiation.
1-6 5-6 The Corporate Citizenship Model of CSR Some companies engage in CSR efforts solely for the public good and do not expect a commercial return on their contributions. These organizations believe that they play a particular role in the community and that their ability to do good – which derives from the profits they reap – creates a responsibility to do good. This model often exists where there is a strong leader with a sense of responsibility and connection to the community. Example: in Ben & Jerry’s Ice Cream most recent Social & Environmental Assessment, the company explains that it seeks to create a “broader, bolder vision of how it can leverage its reputation and its expertise to advance its Social Mission.”
1-7 5-7 The Social Contract Model of CSR Second, some CSR proponents argue that corporations reap the benefits of serving as a community citizen and therefore owe a reciprocal obligation to that community. This model holds that the moral rights possessed by various stakeholders create responsibilities on the part of the corporation to respect those rights.
1-8 5-8 The Enlightened Self-Interest Model of CSR States that the incorporation of CSR can lead to differentiation and competitive market advantage for the business, something that can be branded for the present and future. (Also sometimes termed the economic model) Some companies have implemented a strong CSR policy and have been successful in the establishment of a positive brand. Examples: BP and Nike. In a 2005 announcement about an increase in funding for green technology research, General Electric CEO Jeffrey Immelt explained that it was not a “self- sacrificing attempt to save the planet,” but instead because GE planned “to make money doing it.” Under this larger economics umbrella, one would find arguments based in reduction of risk, market reputation, brand image, stakeholder relationships, and long term strategic interests.
1-9 5-9 To whom does business owe this social responsibility? Firms exist in relationships with many stakeholders and these relationships can create a variety of responsibilities. It may not be possible to satisfy the needs of each and every stakeholder in a situation. Therefore, social responsibility would require decisions to prioritize competing and conflicting responsibilities.
1-10 5-10 The Nature and Extent of the Responsibility Is profit, legally made, the only guiding principle of socially responsible business activities, or should the impact of a decision on others be considered, even where the law does not require it? What do we mean when we say “responsible?” We might mean that it is reliable, dependable or trustworthy. A second meaning of responsible involves attributing something as a cause for some event or action. A third sense involves attributing liability or accountability for some event or action and creates a responsibility to make things right again.
1-11 5-11 The Nature of “Responsibility” Reference to corporate social responsibility denotes those duties or restrictions that bind us to act in one way rather than another. Responsibilities are those things that we ought, or should, do, even if we would rather not. Responsibilities bind, or compel, or constrain, or require us to act in certain ways. To talk about business’s social responsibilities is to be concerned with society’s interests that restrict or bind business’s behavior. Social “responsibility” is what a business should or ought to do for the sake of society.
1-12 5-12 Corporate “Responsibilities” Even when not explicitly prohibited by law, ethics would demand that we not cause avoidable harm. In practice, this ethical requirement is very close to responsibilities established by the precedents of tort law. Beyond the responsibility to obey the law, a second level of responsibilities would hold that business has a social responsibility not to violate anyone’s rights. But there are also cases in which business is not causing harms, but could easily prevent harms from occurring. A more inclusive understanding of corporate social responsibility would hold that business has a responsibility to prevent harms.
1-13 5-13 A Responsibility to “Do Good?” Perhaps the most wide-ranging standard of CSR would hold that business has a social responsibility to do good things and to make society a better place. Many of the debates surrounding corporate social responsibility involve the question of whether business really has a responsibility to support such good causes. Some people argue that, like all cases of charity, this is something that deserves praise and admiration, but it is not something that every business ought to do.
1-14 5-14 A Responsibility to “Do Good?” Philosophers sometimes distinguish between obligations/duties and responsibilities to make exactly this point. We may have a responsibility to be charitable, but it is not obligatory nor is it a duty. Others argue that business does have an obligation to support good causes and “give back” to the community. This sense of responsibility is more akin to a debt of gratitude and thankfulness; something less binding than a legal or contractual obligation perhaps, but more than a simply act of charity.
1-15 5-15 Exploring Enlightened Self- Interest: Motivation for CSR There are a variety of arguments to motivate a socially responsible firm. The impact on the bottom line may stem both from customer preference as well as from employee preference. The problem with a focus on preference, however, is that social responsibility becomes merely social marketing. A firm may use the image of social responsibility to garner customer support or employee loyalty while the facts do not evidence a true commitment. Are motivations relevant? Can a firm have only one motivation?
1-16 5-16 Does Motivation Matter? The practice of caring for the “image” of a firm is sometimes referred to as reputation management. There is nothing inherently wrong with managing one’s firm’s reputation, but observers might challenge firms for engaging in CSR activities solely for the purpose of impacting their reputations. The challenge is based on the fact that reputation management often works! If a firm creates a good image for itself, it builds a type of trust bank where consumers or other stakeholders seem to give it some slack if they then hear something negative about the firm. Similarly, if a firm has a negative image, that image may stick, regardless of what good the corporation may do.
1-17 5-17 Let us take a look at the evidence – It is somewhat persuasive but one needs to weigh it for one’s self. David Vogel contends that, while there is a market for firms with strong CSR missions, it is a niche market and one that therefore caters to only a small group of consumers or investors. SustainAbility concludes “it does pay!” The report concludes that it does pay for businesses in emerging markets to pursue a wider role in environmental and social issues, citing cost reductions, productivity, revenue growth, and market access as areas of greatest return for MNEs. Does Good Ethics = Good Business?
1-18 5-18 Records on Social Issues = Positive Financials Moreover, a landmark study by Professors Stephen Erfle and Michael Frantantuono found that firms that were ranked highest in terms of their records on a variety of social issues (including charitable contributions, community outreach programs, environmental performance, advancement of women, and promotion of minorities) had greater financial performance as well. Financial performance was better in terms of operating income growth, sales-to-assets ration, sales growth, return on equity, earnings-to-asset growth, return on investment, return on assets and asset growth. Does Good Ethics = Good Business?
1-19 5-19 Good Corporate Citizen = Good Financial Performance Another study by Murphy and Verschoor reports that the overall financial performance of the 2001 Business Ethics Magazine Best Corporate Citizens was significantly better than that of the remaining companies in the S&P 500 index, based on the 2001 BusinessWeek ranking of total financial performance. A follow-up study to validate these findings was conducted by the UK- based Institute of Business Ethics. The IBE found that, from the perspectives of economic value added, market value added and the price- earnings ratio, those companies who had a code of conduct out performed those who did not over a five year period. Each of these quantifiable measurements and others in the text can perhaps serve as proxies for success, to some extent, or at least would be unlikely to occur in a company permeated by ethical lapses. Does Good Ethics = Good Business?
1-20 5-20 Chapter Five Vocabulary Terms After examining this Chapter, you should have a clear understanding of the following Key Terms and you will find them defined in the Glossary: Corporate citizenship model of CSR Corporate social responsibility Enlightened self-interest model of CSR Ethical custom Reputation management Social contract model of CSR monotonous