Canadian Business and Society: Ethics & Responsibilities Chapter Seven

Chapter Outline Corporate Social Responsibility Debate: The role of business is to make money vs. It’s more than that Social Responsibility Theories Pyramid of Corporate Social Responsibility Corporate Sustainability (CS) Reputation Management Social Impact Management Triple-E Bottom Line (TBL) Good Corporate Citizenship Copyright © 2008 McGraw-Hill Ryerson Ltd. Chapter 7

Corporate Social Responsibility: Definition The way a corporation achieves a balance among it economic, social, and environmental responsibilities in its operations so as to address shareholder and other stakeholder expectations. Copyright © 2008 McGraw-Hill Ryerson Ltd. Chapter 7

Key Elements of CSR Corporations have responsibilities beyond the production of goods and services. These responsibilities involve helping to solve social problems. Corporations have a broader constituency than just stockholders. Corporations have impacts beyond simple marketplace transactions. Corporations serve a wider range of human values than just economic values. Copyright © 2008 McGraw-Hill Ryerson Ltd. Chapter 7

Debate: Case for Involvement Business must satisfy society’s needs and expectations. CSR prevents public criticism and government regulation. McDonald’s Clam Shells Business and society are interdependent. Boom towns Copyright © 2008 McGraw-Hill Ryerson Ltd. Chapter 7

Case for Involvement CSR is good for the bottom line. Insurance companies Investors and consumers support CSR. Green mutual funds Addressing social problems can become financial opportunities (e.g., pollution abatement). Playgrounds surfaces made from recycled tires Copyright © 2008 McGraw-Hill Ryerson Ltd. Chapter 7

Case for Involvement Business should take long-term CSR approach. MEC Social actions improve public image and goodwill. Business can solve problems as well as government. African countries Copyright © 2008 McGraw-Hill Ryerson Ltd. Chapter 7

Case for Involvement Proactive approach is better than reactive. Home Depot Businesspeople are also concerned citizens. Apotex Inc. (Bernard and Honey Sherman) Copyright © 2008 McGraw-Hill Ryerson Ltd. Chapter 7

Debate: Counterarguments Profit maximization is the primary purpose of business. Milton Friedman, Nobel Prize winner in Economics Business is responsible to shareholders. It should be their decision Copyright © 2008 McGraw-Hill Ryerson Ltd. Chapter 7

Counterarguments Social policy is role of government. Business lacks training in social issues. It is not competent CSR would give too much power to business. Take over a community Impose business values Copyright © 2008 McGraw-Hill Ryerson Ltd. Chapter 7

Counterarguments Business involvement in social matters increases costs. Someone is paying for it Mistakes can be made No reliable guidance for business in CSR matters. PR vs. real action Needed vs. waste of time Charity accountability Copyright © 2008 McGraw-Hill Ryerson Ltd. Chapter 7

Counterarguments Business cannot be held accountable unlike social institutions. To what standard? Whose responsible to hold them accountable? There is divided support in business community for social involvement. No competition to get involved The concept is unclear, so business action is uncertain. Copyright © 2008 McGraw-Hill Ryerson Ltd. Chapter 7

Social Responsibility Theories Amoral view “Amoral” (not immoral) – an activity without moral quality Traditional view of business profit-making entity Laws governing incorporated businesses make them legitimate Milton Friedman Source: Klonoski, 1991 Copyright © 2008 McGraw-Hill Ryerson Ltd. Chapter 7

Social Responsibility Theories Personal view Corporations are like people and can therefore be held accountable for their actions. There is a ‘right thing to do’ and corporations can be punished for acting immorally. Counterarguments: Corporations are legal entities not persons and can not be held accountable. Only the people running the organization can be held accountable for the actions of the corporation. Copyright © 2008 McGraw-Hill Ryerson Ltd. Chapter 7

Social Responsibility Theories Social view Corporations exist within a social context Corporations are social institutions with social responsibilities The Amoral view is incomplete There are many examples of the social view Copyright © 2008 McGraw-Hill Ryerson Ltd. Chapter 7

Examples of the Social View Copyright © 2008 McGraw-Hill Ryerson Ltd. Chapter 7

Pyramid of Corporate Social Responsibility “Be a good corporate citizen” Desired Philan- thropic “Be ethical” Expected Ethical “Obey the law” Required Legal “Be profitable” Economic Required Source: Archie Carroll, 1991 Copyright © 2008 McGraw-Hill Ryerson Ltd. Chapter 7

Corporate Sustainability (CS) Most prominent term after CSR Definition: Corporate Sustainability refers to corporate activities demonstrating the inclusion of social and environmental as well as economic responsibilities in business operations as they impact all stakeholders. Copyright © 2008 McGraw-Hill Ryerson Ltd. Chapter 7

Corporate Sustainability (CS) Marrewijk ‘s five levels of CS Compliance-driven CS: follow regulations Profit-driven CS: focus on bottom line Caring CS: go beyond legal compliance Synergistic CS: well balanced solutions Holistic CS: fully integrated CS Copyright © 2008 McGraw-Hill Ryerson Ltd. Chapter 7

Reputation Management Definition: Reputation management is an effort to enhance a corporation’s image Previous focus on media and public relations as well as crisis management Today, focus is on relationships with all stakeholders Copyright © 2008 McGraw-Hill Ryerson Ltd. Chapter 7

Reputation Management Reputation Management can: Enhance financial performance Improve competitive positions Increase public approval Reputations take a long time to be established, but can be destroyed quickly Copyright © 2008 McGraw-Hill Ryerson Ltd. Chapter 7

Social Impact Management Field of inquiry at the intersection of business needs and wider societal concerns that reflects and respects the complex interdependency between the two. Interdependency of business and society Two directional: Society’s influence on corporations Corporation's influence on society Copyright © 2008 McGraw-Hill Ryerson Ltd. Chapter 7

Social Impact Management Evaluates 3 aspects of business: Purpose of business Social context of business Metrics: how performance is measured Copyright © 2008 McGraw-Hill Ryerson Ltd. Chapter 7

Triple-E Bottom Line (TBL) Evaluates a corporation’s performance according to a summary of the economic, social, and environmental value the corporation adds or destroys. Now forms the basis for corporate reporting of economic, ethical, and environmental responsibilities. Copyright © 2008 McGraw-Hill Ryerson Ltd. Chapter 7

Corporate Citizenship Definition: The demonstration by a corporation that it takes into account its complete impact on society and the environment as well as its economic influence. Copyright © 2008 McGraw-Hill Ryerson Ltd. Chapter 7

Good Corporate Citizenship: Benefits Reputation management Risk profile and risk management Employee recruitment, motivation, and retention Investor relations and access to capital Learning and innovation Competitiveness and market positioning Operational efficiency Licence to operate Greater leeway Source: World Economic Forum Copyright © 2008 McGraw-Hill Ryerson Ltd. Chapter 7

New Approach to Corporate Citizenship Limited Focus on corporate giving Equivalent Emphasis on sustainability Extended Defined as a set of individual, social, civil, and political rights Source: Matten and Crane, 2005 Copyright © 2008 McGraw-Hill Ryerson Ltd. Chapter 7