1. Definition of CSR “ The duty a corporation has to create wealth by using means that avoid harm to, protect, or enhance societal assets” p. 116 “ The duty a corporation has to create wealth by using means that avoid harm to, protect, or enhance societal assets” p. 116

2. Three Basic Elements of CSR Market Forces Market Forces Mandated Social Programs Mandated Social Programs Voluntary Social Programs Voluntary Social Programs Exceed regulations (legal plus; safety, pollution, discrimination,…) Exceed regulations (legal plus; safety, pollution, discrimination,…) Respond to national consensus (charities) Respond to national consensus (charities) Actions beyond public consensus (work to make changes) Actions beyond public consensus (work to make changes)

3. Basic Elements of Social Responsibility 5-11

4. The Evolving Idea of Corporate Social Responsibility  The fundamental idea is that corporations have duties that go beyond lawful execution of their economic function.  Over time the doctrine has evolved to require more expansive action by companies largely because:  Stakeholder groups have gained more power to impose their agendas  The ethical and legal philosophies underlying it have matured 5-4

5. Arguments Against CSR 1 Classical Economic Argument: Management’s only responsibility is to maximize the profits of its owners. a. Role of business in our system a. Role of business in our system b. Duty to shareholders - private property rights b. Duty to shareholders - private property rights 2 Cost of social action is passed on to consumers 3 CSR decreases competitiveness (esp. international) 4 Business already has enough power

6. Arguments For CSR CSR is in business’s long-term self-interest CSR is in business’s long-term self-interest Must use power or lose legitimacy (social contract) Must use power or lose legitimacy (social contract) Ward off government intervention & regulation Ward off government intervention & regulation Public relations Public relations Ethical Imperative Ethical Imperative Other: Other: Businesses are reservoirs of skill Businesses are reservoirs of skill

7. General Principles of CSR Corporations are Primarily Economic Institutions. Corporations are Primarily Economic Institutions. Must follow the law. Must follow the law. Managers must act ethically. Managers must act ethically. Duty to correct the adverse social impacts they cause. Duty to correct the adverse social impacts they cause.

8. General Principles of CSR cont. Social responsibility varies with company characteristics (e.g., size, industry, location). Social responsibility varies with company characteristics (e.g., size, industry, location). Managers should try to meet the legitimate needs of stakeholders. Managers should try to meet the legitimate needs of stakeholders. Comply with the norms of the social contract. Comply with the norms of the social contract. Publicly report on market, mandated, and voluntary actions. Publicly report on market, mandated, and voluntary actions.

9. Are Social and Financial Performance Related?  A review of 95 studies over 30 years found that a majority (53 percent) of businesses showed a positive relationship between profits and responsibility, while 5 percent showed a negative  Results inconsistent and ultimately inconclusive due to methodological questions.  Generally held that it will not hurt you, even if it doesn’t help. 5-13

10. Market for Morals  There is no evident relationship between ethics and corporate market value.  Can be a profitable niche strategy  People want it to be true.  It eliminates the issue of ethics in business  Confirmation bias – select data that support preconceived views and ignore data that challenge those views Bad things happen to good people and to good businesses, naïve to think otherwise. Bad things happen to good people and to good businesses, naïve to think otherwise.

11. Concluding Observations  Historically, corporations have been motivated primarily by the central focus on profits.  Corporations are now being pressured to alter this focus.  The idea of corporate social responsibility has continuously expanded in meaning.  The power of stakeholders to define corporate duty has increased.  The explosive growth of global trade and global corporations has created new standards and practices of social responsibility tied to global norms. 5-24

12. Definitions Stakeholders Stakeholders Those who are affected by and affect the actions of a firm. Those who are affected by and affect the actions of a firm. Primary Stakeholders Primary Stakeholders Those who have a formal, official or contractual relationship with a firm. Those who have a formal, official or contractual relationship with a firm. E.g., stockholders, customers, employees, communities, governmental agencies, … E.g., stockholders, customers, employees, communities, governmental agencies, … Secondary Stakeholders Secondary Stakeholders All other stakeholders All other stakeholders E.g., environmentalists, media, trade groups, … E.g., environmentalists, media, trade groups, …

13. Stakeholder Management Strategic Approach Strategic Approach Views stakeholders as factors to be taken into consideration and managed while the firm is pursuing profits for the shareholders Views stakeholders as factors to be taken into consideration and managed while the firm is pursuing profits for the shareholders Multifiduciary Approach Multifiduciary Approach Management has a fiduciary responsibility to stakeholders just as it does to shareholders. Places stakeholders and shareholders on roughly equal footing. Management has a fiduciary responsibility to stakeholders just as it does to shareholders. Places stakeholders and shareholders on roughly equal footing. Stakeholder Synthesis Stakeholder Synthesis The firm has a moral but not a fiduciary responsibility to stakeholders The firm has a moral but not a fiduciary responsibility to stakeholders

14. Criticisms Not a realistic assessment of power relationships. Not a realistic assessment of power relationships. seeks to replace force with moral duty. seeks to replace force with moral duty. Sets up too vague a guideline. Sets up too vague a guideline. Who is a stakeholder? What do we owe them? How do we balance competing demands? Who is a stakeholder? What do we owe them? How do we balance competing demands? No single, clear, objective measure of ethical/economic performance. No single, clear, objective measure of ethical/economic performance.

15. 5 Major Questions Who are our stakeholders? Who are our stakeholders? What are their stakes? What are their stakes? What opportunities and challenges do our stakeholders present? What opportunities and challenges do our stakeholders present? What responsibilities does our firm have to all its stakeholders? What responsibilities does our firm have to all its stakeholders? What strategies or actions should our firm take to deal with stakeholder challenges and opportunities? What strategies or actions should our firm take to deal with stakeholder challenges and opportunities?