Transcript Chapter 5 Slides

Chapter 5
Corporate
Social
Responsibility
McGraw-Hill/Irwin
Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
Merck & Co., Inc.
o For centuries river blindness, or onchocerciasis, has
tortured humanity in tropical regions
o In 1975 scientists at Merck discovered a compound
that killed animal parasites
o Introduced as a veterinary drug, they believed it could
also help humans
o Neither those in need nor their governments could
afford to buy the drug
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Merck & Co., Inc.
o In 1987, Merck decided to provide the drug at no cost
o Merck’s donations of medicine are a stellar example
of old-fashioned philanthropy the way it has been
done in America since the rise of big companies
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The Evolving Idea of Social Responsibility
o Corporate social responsibility: The duty of a
corporation to create wealth in ways that avoid harm
to, protect, or enhance societal assets
o The fundamental idea is that corporations have duties
that go beyond lawful execution of their economic
function
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The Evolving Idea of Social Responsibility
o Advocates of social responsibility, justify it with three
basic arguments
o It is an ethical duty to promote social justice
o Social responsibility is practical
o It is necessary because other forces do not force full
responsibility on corporations
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Figure 5.1 - The CSR Spectrum
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The Evolving Idea of Social Responsibility
o Over time the doctrine has evolved to require more
expansive action by companies largely because:
o Stakeholder groups have gained more power to impose
their agendas
o The ethical and legal philosophies underlying it have
matured
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Social Responsibility in Classical
Economic Theory
o Throughout American history, classical capitalism has
been the basic inspiration for business
o In the classical view, a business is socially
responsible if it maximizes profits while operating
within the law
o The idea that markets harness low motives and work
them into social progress has always attracted
skeptics
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The Early Charitable Impulse
o Steven Girard changed the climate of education in the
United States by bequeathing $6 million for a school
to educate orphaned boys
o John D. Rockefeller systematically gave away $550
million over his lifetime
o Andrew Carnegie gave $350 million during his life to
social causes
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The Early Charitable Impulse
o Social Darwinism: A philosophy of the late 1800s
and early 1900s that used evolution to explain the
dynamics of human society and institutions
o The idea of “survival of the fittest” in the social realm
implied that rich people and dominant companies were
morally superior
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Social Responsibility in the Late Nineteenth and
Early Twentieth Centuries
o During the Progressive era, three interrelated themes
of broader responsibility emerged:
o Managers were trustees
o Managers had an obligation to balance multiple
interests
o Many managers subscribed to the service principle
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Social Responsibility in the Late Nineteenth and
Early Twentieth Centuries
o Trustee: An agent of a company whose corporate
role puts him or her in a position of power over the
fate of not just stockholders, but also of others such
as customers, employees, and communities
o Service principle: A belief that managers served
society by making companies profitable and that
aggregate success by many managers would resolve
major social problems
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Social Responsibility in the Late Nineteenth and
Early Twentieth Centuries
o Henry Ford – Touted citizenship but was ultimately
unconcerned about the welfare of his employees
o General Robert E. Wood – Believed in responsibility
to customers, the public, employees, suppliers, and
finally stockholders
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Social Responsibility in the Late Nineteenth and
Early Twentieth Centuries
o 1920s and beyond, corporations organized charities
began forming to which corporations contributed:
o Community Chest
o Red Cross
o Boy Scouts
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1950 to the Present
o Contemporary understanding of corporate social
responsibility formed during this period
o Social Responsibilities of the Businessman
o Dissenters to this theory were conservative
economists who claimed that business is most
responsible when it makes money efficiently, not
when it misapplies its energy to social projects
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1950 to the Present
o 1971 – Bold statement by the Committee for
Economic Development outlining three concentric
circles of responsibilities
o 1981 – Statement on Corporate Responsibility from
the Business Roundtable
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Figure 5.2 – Motives for Social Responsibility and
Their Evolving Magnitudes
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General Principles of Corporate Social
Responsibility
o
o
o
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Corporations are economic institutions run for profit
All firms must follow multiple bodies of law
Managers must act ethically
Corporations have a duty to correct the adverse social
impacts they cause
o Social responsibility varies with company
characteristics
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General Principles of Corporate Social
Responsibility
o Managers should try to meet legitimate needs of
multiple stakeholders
o Corporate behavior must comply with an underlying
social contract
o Corporations should be transparent and accountable
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Are Social and Financial Performance
Related?
o A recent review of 95 studies over 30 years found that
a majority (53 percent) of businesses showed a
positive relationship between profits and
responsibility, while only 5 percent showed a
negative one
o Safe to say corporations rated high in social
responsibility are no less profitable than lower rated
firms
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Corporate Social Responsibility in a Global
Context
o By the end of the twentieth century the doctrine of
corporate social responsibility had been widely
accepted in industrialized nations
o Recent debates over the duties of corporations in their
international operations
o International law is weak in addressing social impacts
of business
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Corporate Social Responsibility in a Global
Context
o Giant corporations may not be subject to strong laws
and regulations in foreign countries
o In adapting to global economic growth corporations
have used business strategies that distance them from
direct accountability or social harms
o More national regulation of multinational
corporations is unlikely
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The Problem of Cross-Border Corporate Power
o Extraterritoriality: The application of one nation’s
laws within the borders of another nation
o Nongovernmental organizations (NGOs) – voluntary
organizations becoming powerful advocates of
restricting corporate power outside the borders of
industrialized nations
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The Rise of New Global Values
o Soft law: Statements of philosophy, policy, and
principle found in nonbinding
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Figure 5.3 - A Global System of CSR
Activity
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Global Corporate Responsibility:
Development of Norms and Principles
o Norm: A standard that arises over time and is
enforced by social sanction or law
o Principle: A rule, natural law, or truth used as a
standard to guide conduct
o Milestones in the development of norms
o U.N. Universal Declaration of Human Rights
o Tripartite Declaration of Principles concerning
Multinational Enterprises and Social Policy
o Norms on the Responsibilities of Transnational
Corporations
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Global Corporate Responsibility: Codes of
Conduct
o Codes of conduct: Formal statements of aspirations,
principles, guidelines, and rules for corporate
behavior
o Created by companies, trade associations, NGOs,
governments, and international organizations
o The target is the corporation
o The code’s effectiveness depends on how the
corporation carries it out
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Global Corporate Responsibility: Reporting
and Verification Standards
o Sustainability reporting: The practice of a
corporation publishing information about its
economic, social, and environmental performance
o Two problems of sustainability reporting:
o Defining and measuring social performance is difficult
o Reports are not comparable from company to company
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Global Corporate Responsibility:
Certification and Labeling Schemes
o Criteria for labels set by industry, NGOs, unions, and
sometimes governments
o Certifications promote many ideals including human
rights, fair trade, and campaigns against child labor
o Fair trade: The idea that ethical consumers will pay a
premium for commodities from producers in
developing nations who use sustainable methods
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Global Corporate Responsibility:
Management Standards
o Management standard: A model of the methods an
organization can use to achieve certain goals
o Eco-Management and Audit Scheme (EMAS)
o International Standards Organization (ISO)
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Global Corporate Responsibility: Social
Investment and Lending
o U.N. Principles for Responsible Investment require
signatories to consider a company’s environmental,
social, and governance performance when they invest
o FTSE4Good Global Index is intended to set the world
standard for investors seeking “companies that meet
globally recognized corporate responsibility
standards”
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Global Corporate Responsibility: Social
Investment and Lending
o International Finance Corporation (IFC) seeks to
promote development and reduce poverty by funding
projects for corporations
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Global Corporate Responsibility:
Government Actions
o Governments advance corporate responsibility
through binding regulation and by actively promoting
voluntary actions
o NGOs watch multinational corporations and police
actions they see as departing from emerging norms
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Assessing the Evolving Global CSR System
o As multinational corporations grew in power with the
expansion of global trade, a perceived deficiency in
regulation was countered by action within civil
society
o No company can remain aloof from the emerging
global CSR system that promotes and enforces
corporate adherence to international CSR standards
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Assessing the Evolving Global CSR System
o An important issue is whether or not the emerging
system is the most appropriate way to regulate large
corporations
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Concluding Observations
o Historically, corporations have been motivated
primarily by the central focus on profits
o Corporations are now being pressured to alter this
focus
o The idea of corporate social responsibility has
continuously expanded in meaning
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Concluding Observations
o The power of stakeholders to define corporate duty
has increased
o The explosive growth of global trade and global
corporations has created new standards and practices
of social responsibility tied to global norms
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Figure 5.4 - The Evolution of Corporate
Social Responsibility
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