chapter 5 business ethics

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Copyright © 2008 by The McGraw-Hill Companies, Inc. ll rights reser!e". McGraw-Hill#Irwin


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Chapter 5

Corporate Social

ResponsibilityThis chapter:

Defines the idea of corporate socialresponsibility and explains how it has expandedin meaning and practice over time.

Explains more about how corporations carry outtheir social responsibilities.


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Merck & Co., Inc.

Opening Case For centuries river blindness or onchocerciasis

has tortured humanity in tropical regions.

!n "#$5 scientists at %erc& discovered a compoundthat &illed animal parasites. !ntroduced as aveterinary drug they believed it could also helphumans.

'either those in need nor their governments couldafford to buy the drug.

!n "#($ %erc& decided to provide the drug at nocost.

%erc&)s donations of medicine are a stellar example of old*fashioned philanthropy the way it has been done in +merica

since the rise of big companies.


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The Evolving Idea of Social

Responsibility

The fundamental idea is thatcorporations have dties that gobeyond carrying out their basiceconomic function in a lawful

manner. ,ver time the doctrine has evolved

to re-uire more expansive action bycompanies largely because: ta&eholder groups have gained

more power to impose theiragendas The ethical and legal philosophies

underlying it have matured

Corporatesocialresponsibility

The duty of acorporation to

create wealth inways that avoidharm to protector enhancesocietal assets.


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Social Responsibility in

Classical Econo!ic Theory

Throughout +merican history classical capitalis! has been the basic inspiration for business.

!n this view a business is socially responsible if itmaximi/es profits while operating within the law.

The idea that mar&ets harness low motives andwor& them into social progress has alwaysattracted s&eptics.

Today the classical ideology still commands theeconomic landscape but ethical theories ofbroader responsibility have worn down itsprominences.


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The Early Charitable

I!plse %ost colonial era businesses practiced frugality yet

charity was a coexisting virtue.

The wealthy endowed social causes as individualsnot through their companies.

teven 0irard changed the climate of education in the1nited tates by be-ueathing 23 million for a schoolto educate orphaned boys.

4ohn D. oc&efeller systematically gave away 2556million over his lifetime.

+ndrew Carnegie gave 2756 million over his lifetimeto causes that would elevate the culture of a society.

Carnegie believed fortunes should not be wasted bypaying higher wages or giving gifts to poor people.


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The Early Charitable I!plse

"contined#

8eople such as +ndrew Carnegie and 9erbertpencer believed in the doctrine of social$ar%inis! when it came to charity.

ocial Darwinism held that charity interfered withthe natural evolutionary process in which societyshed its less fit to ma&e way for the better adapted.

+dditionally courts consistently held charitable giftsto be ultra vires beyond the law; because charters

granted by states when corporations were formeddid not expressly permit them.


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Social Responsibility in the ate

'ineteenth and Early T%entieth

Centries 0iving no matter how generous was a narrow

&ind of social responsibility often unrelated to acompany)s impacts on society.

During the 8rogressive era three interrelatedthemes of broader responsibility emerged:

%anagers were trstees

%anagers had an obligation to balance multiple interests

%any managers subscribed to the serviceprinciple


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Social Responsibility in the ate

'ineteenth and Early T%entieth

Centries "contined# 9enry Ford < touted citi/enship but was ultimately

unconcerned about the welfare of his employees.

0eneral obert E. =ood < believed inresponsibility to customers the public employeessuppliers and finally stoc&holders.

"#>6s and beyond organi/ed charities beganforming to which corporations contributed:

Community Chest

ed Cross

?oy couts


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()*+The -resent

Contemporary understanding of corporate socialresponsibility formed during this period. Social Responsibilities of the Businessman

Dissenters to this theory were conservativeeconomists who claimed that business is !ost responsible when it ma&es money efficiently not when it misapplies its energy to social pro@ects.

"#$" < ?old statement by the Committee for

Economic Development outlining three concentriccircles of responsibilities. "#(" < Statement on Corporate Responsibility from

the ?usiness oundtable.


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asic Ele!ents of Social

Responsibility


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/eneral -rinciples of Corporate

Social Responsibility Corporations are economic institutions run for profit.

+ll firms must follow multiple bodies of law.

%anagers must act ethically

Corporations have a duty to correct the adverse social

impacts they cause. ocial responsibility varies with company characteristics.

%anagers should try to meet legitimate needs ofsta&eholders.

Corporate behavior must comply with norms in an underlyingsocial contract.

Corporations should also accept a measure of accountabilitytoward society.


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0re Social and 1inancial

-erfor!ance Related2

+ recent review of #5 studies over 76 years foundthat a ma@ority 57 percent; of businesses showed apositive relationship between profits andresponsibility while only 5 percent showed a

negative one. esults inconsistent and ultimately inconclusive due

to methodological -uestions.

afe to say corporations rated high in social

responsibility are no less profitable than lower ratedfirms.


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Corporate Social Responsibility

in a /lobal Conte3t

?y the end of the twentieth century the doctrine ofcorporate social responsibility had been %idelyaccepted in industriali/ed nations.

ecent debates over the duties of corporations in

their international operations. !nternational law is wea& in addressing social impacts of

business. 0iant corporations may not be sub@ect to strong laws and

regulations in foreign countries.

!n adapting to global economic growth corporations haveused business strategies that distance them from directaccountability or social harms.

%ore national regulation of multinational corporations isunli&ely.


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Corporate Social Responsibility

in a /lobal Conte3t "contined#

Extraterritoriality < enforcement is proble!atic.

'ongovern!ental organi4ations "'/Os# <voluntary organi/ations becoming powerfuladvocates of restricting corporate power outsidethe borders of industriali/ed nations.

8ushed for 1'*sponsored conferences on theenvironment population human rights socialdevelopment and gender.

Soft la% < statements of philosophy policy andprinciple found in nonbinding internationalconventions


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/lobal CSR5 $evelop!ent of

'or!s and -rinciples

'or! < a standard that arises over timeand is enforced b social sanction or law

-rinciple < a rule natural law or truth used

as a standard to guide conduct %ilestones in the development of norms

1.'. 1niversal Declaration of 9uman ights

Tripartite Declaration of 8rinciples concerning%ultinational Enterprises and ocial 8olicy

'orms on the esponsibilities of TransnationalCorporations


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/lobal CSR5

Codes of Condct Codes of conduct set forth aspirations principles

guidelines and rules for corporate behavior.

Created by companies trade associations '0,sgovernments and international organi/ations.

The target is the corporation

The code)s effectiveness depends on how thecorporation carries it out.

%any codes are wea& because they lac& the forceof law


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/lobal CSR5 Reporting and

6erification Standards

ustainability reporting < the practice ofa corporation publishing informationabout its economic social and

environmental performance Two problems of sustainability reporting:

Defining and measuring social performance isdifficlt

eports are not co!parable from company tocompany


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/lobal CSR5 abeling and

Certification Sche!es

!nfluence the mar&et on the de!andside.

Criteria for labels set by industry'0,s unions and sometimesgovernments.

Certifications promote many idealsincluding human rights fair trade andcampaigns against child labor.


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/lobal CSR5

Manage!ent Standards Eco*%anagement and +udit cheme

E%+;

!nternational tandards ,rgani/ation!,;


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/lobal CSR5

Social Invest!ent and ending

1.'. 8rinciples for esponsible !nvestment re-uiresignatories to consider a company)s environmentalsocial and governance performance when theyinvest.

FTEA0ood 0lobal !ndex is intended to set theworld standard for investors see&ing Bcompaniesthat meet globally recogni/ed corporateresponsibility standards.

!nternational Finance Corporation !FC; see&s topromote development and reduce poverty byfunding pro@ects for corporations.


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/lobal CSR5 /overn!ent 0ctions

and Civil Society 6igilance

0overnments advance corporateresponsibility through bindingregulation and by actively promoting

voluntary actions.

'0,s watch multinationalcorporations and police actions they

see as departing from emergingnorms.


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0ssessing the Evolving /lobal

CSR Syste!

+s multinational corporations grew in power withthe expansion of global trade a perceiveddeficiency in regulation was countered by actionwithin civil society.

'o company can remain aloof from the emergingglobal C system that promotes and enforcescorporate adherence to international Cstandards

+n important issue is whether or not the emergingsystem is the most appropriate way to regulatelarge corporations.


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Conclding Observations

9istorically corporations have been motivatedprimarily by the central focus on profits.

Corporations are now being pressured to alter thisfocus.

The idea of corporate social responsibility hascontinuously expanded in meaning.

The power of sta&eholders to define corporateduty has increased.

The explosive growth of global trade and globalcorporations has created new standards andpractices of social responsibility tied to global norms.

chapter 5 business ethics

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