Corporate Social Responsibility BMJN 5402

Does a “Corporate” Have Legal & Moral Responsibility?

Corporate Legal & Moral Responsibility 1 “Corporate” : from the word “corpus” or “corpora” means “legal entity” 2 Created by law has legal status  has legal obligation 3 Not identical with people, but operated by people 4 The people, who run the corporate has moral responsibility

Theory of Corporate Social Responsibility (CSR) 1 Classical Model of CSR 2 Modified Version :Moral Minimum 3 Stakeholder Theory

Classical Model Of CSR Milton Friedman (Economist-Nobel Prize Winner) in “Capitalism and Freedom” Free Market Theory “The one & only CSR of business (is)…to increase its profit so long it stays within the rule of game Limit : obeying the law, without deception & fraud

Classical Model of CSR Manager is responsible to stockholder Desjardin, p51 Manager is responsible to stockholder Manager is ethically obliged to increase profit Use of corporate money for social activity is abusing power Business is understood as private property

Critical Assessment to Classical Model Utilitarian Defense (Desjardin p-53) Is free market an adequate means to our ends? Are the ends ethically appropriate? Private Property Defense (Desjardin p-58) Are property rights absolute? Status of stockholder : owner or investor?

Utilitarian Defense Is free market an adequate means to our ends? Existence of “Market Failures” Externalities, i.e : pollution & resource depletion Protection of “public goods” Impact of pursuing individual’s interest First Generation problem Influence of business to policy & customer

Utilitarian Defense Are the ends ethically appropriate? People may not be “happy” after receiving goods & service that they desired Economic growth only measure quantity, not quality Efficient markets does not guarantee ethically worthy outcome

Private Property Defense Are property rights absolute? Use of property is constrained by right of others Focus on profit will override competing goods & other rights Status of stockholder : owner or investor? Stockholders are “investor”, only one source of ethical limit Obeying law is NOT the only restriction on pursuit of profit

Modified Version : Moral Minimum Desjardin, p61 Ethical imperatives : To cause no harm obligation To prevent harm & do good  prima facie Distinguishing between categories is not always easy Significance : recognition that compliance with law is insufficient for being ethical business

The Stakeholder Theory Desjardin, p64 Reject privileged position of stockholder Concept of stakeholder : Narrow: any group who are vital to survival and success of corporation Wide : any group or individual who can affect or be affected by the corporation Management requires to balance ethical interest of all affected parties

Classical vs. The Stakeholder Theory- Wal Mart Framework of CSR Framework of CSR Wal Mart Cus-tomer Stock-holder Wal Mart Custo-mer Stock-holder Vendors Emplo-yees Society Satisfy customer to fulfill obligation to stockholder

Challenge to Stakeholder Theory 1 General & vague  offer little practical guidance to management 2 Practical challenge : problem with identifying stakeholders & their interest

Corporate Social Responsibility Bertens-p-295-299 Business has economic & social responsibility State-owned enterprise : social responsibility may overrule economic responsibility Social responsibility : negative (mandatory) & positive (supererogatory act) CSR has impact on company’s image  investment Government might sometimes need to be involved

Thank You