lecture 3 (chapter 2)

8/7/2019 Lecture 3 (Chapter 2)

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Corporation and Corporate SocialCorporation and Corporate SocialResponsibility (CSR)Responsibility (CSR)

Business Ethics (BUS 401)Business Ethics (BUS 401)

North South UniversityNorth South University

Lecture 3Lecture 3Instructor: SduInstructor: Sdu


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The Nature ofThe CorporationThe Nature ofThe Corporation

1.1. Whatrole should the corporationplay inour livesWhatrole should the corporationplay inour lives

and society, ifany?and society, ifany?

2.2. Should corporations be entitled tothe same legalShould corporations be entitled tothe same legalrights as individuals? Where should the line berights as individuals? Where should the line bedrawn?drawn?

3.3. How canwe ensure corporations are heldHow canwe ensure corporations are heldaccountable fortheiractions?accountable fortheiractions?

4.4. Should individuals (directors, employees,Should individuals (directors, employees,shareholders) bearany responsibility fortheshareholders) bearany responsibility fortheactions ofa corporation? If so, towhatdegree?actions ofa corporation? If so, towhatdegree?

5.5. Whatare the benefits ofthe corporate form?Whatare the benefits ofthe corporate form?Could analternative model offerthese as well?Could analternative model offerthese as well?

6.6. Do youthink corporations are the rootcause ofDo youthink corporations are the rootcause of

the problem, oris itconsumerism, capitalism, orthe problem, oris itconsumerism, capitalism, orall three?all three?

7.7. If corporations were more reflective oftheIf corporations were more reflective oftheworlds population(poor, women, ethnicallyworlds population(poor, women, ethnicallydiverse, etc) would thathelp?diverse, etc) would thathelp?

8.8. Cana corporationbe termed as a psychopath orCana corporationbe termed as a psychopath or

antianti--social?social?

Source: http://www.thecorporation.comSource: http://www.thecorporation.com


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Legally, corporations are typically regarded asLegally, corporations are typically regarded as

independentindependent from those who work in them, managefrom those who work in them, managethem, invest in them, or receive products or servicesthem, invest in them, or receive products or servicesfrom them.from them.

Corporations areCorporations are separate legal entitiesseparate legal entities in their ownin their ownright.right.

Corporations are regarded as havingCorporations are regarded as having perpetualperpetualsuccessionsuccession, i.e. as an entity they can survive the death, i.e. as an entity they can survive the death

of any individual investors, employees, or customersof any individual investors, employees, or customers they simply need to find a new ones.they simply need to find a new ones.

CorporationsCorporations itself usually owns all the assetsitself usually owns all the assetsassociated with it.associated with it.

Corporation and its key features (I)Corporation and its key features (I)


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Corporations are typically regarded as artificialCorporations are typically regarded as artificialpersons in the eyes of the lawpersons in the eyes of the law, i.e. they have certain, i.e. they have certainrights and responsibilities in society, just as an individualrights and responsibilities in society, just as an individualcitizen might.citizen might.

Corporations are notionally owned by shareholders,Corporations are notionally owned by shareholders,but exist independently of thembut exist independently of them. The corporation holds. The corporation holdsits own assets and shareholders are not responsible for theits own assets and shareholders are not responsible for thedebts or damages caused by the corporation.debts or damages caused by the corporation.

Managers and directors have a fiduciary responsibilityManagers and directors have a fiduciary responsibilityto protect the investment of shareholdersto protect the investment of shareholders, i.e. the senior, i.e. the seniormanagement is expected to hold shareholders investment inmanagement is expected to hold shareholders investment intrust and to act in their best interests.trust and to act in their best interests.

Corporation and its key features (II)Corporation and its key features (II)


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KarlMarxKarlMarx (1847) argued that interests of capitaland(1847) argued that interests of capitalandinterests ofwageinterests ofwage--labourare labourare diametricallydiametrically opposed to opposed toeach other,each other, creating structuraldifficulties of beingcreating structuraldifficulties of being

generous as a capitalistgenerous as a capitalist..

LevittLevitt (1958) in this regard argued that (1958) in this regard argued that governments jobgovernments jobis not business, and businesss job is not governmentis not business, and businesss job is not government..

In 1970,In 1970, Milton FriedmanMilton Friedman argued that i) only humanargued that i) only humanbeings have amoralresponsibility fortheiractions, ii) it isbeings have amoralresponsibility fortheiractions, ii) it isamanagers responsibility to act solely in the interests ofamanagers responsibility to act solely in the interests ofshareholders, iii) social issues and problems are the propershareholders, iii) social issues and problems are the properprovince of the state ratherthan corporate managers.province of the state ratherthan corporate managers.

Can a corporation have any socialresponsibility?Can a corporation have any socialresponsibility?

-- ArgumentsArguments againstagainst the notion of socialresponsibilities of corporationsthe notion of socialresponsibilities of corporations


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CSRCSR itsevolutionasa globalphenomenonitsevolutionasa globalphenomenon

CSR isseenasthe CSR isseenasthe commitmentof businessto work withcommitmentof businessto work withemployeesandsocietyatlarge toimprove qualityoflifeemployeesandsocietyatlarge toimprove qualityoflife (Frynas (Frynas& Blowfield, 2005).& Blowfield, 2005).

Inthe 1980s, controversiessuchasUnionCarbide BhopalInthe 1980s, controversiessuchasUnionCarbide BhopalexplosioninIndiaandNestlsmarketingofinfantformulainexplosioninIndiaandNestlsmarketingofinfantformulain

AfricaAfrica causedwidespreadconcernagainstthe questionablecausedwidespreadconcernagainstthe questionablepracticesoflarge corporations.practicesoflarge corporations.

Duringthe 1990sCSR startedtogainimmense strategicDuringthe 1990sCSR startedtogainimmense strategicimportance forcorporationsofthe developedcountries.importance forcorporationsofthe developedcountries.

Duringthe 1990sWorldDuringthe 1990sWorld--wide criticismsfrom antiwide criticismsfrom anti--corporate andcorporate andantianti--globalizationprotestorsagainstactivitiesof MNCsandglobalizationprotestorsagainstactivitiesof MNCsandglobalizationprojectsgainedmomentum (Hanlon, 2008).globalizationprojectsgainedmomentum (Hanlon, 2008).

Since the early2000s, almostallMNCsstartedtoSince the early2000s, almostallMNCsstartedtointegrate CSRintegrate CSRasastrategicmanagementandcorporate governance toolasastrategicmanagementandcorporate governance tool..


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The Bhopal disaster was an industrial catastrophe that occurred at aThe Bhopal disaster was an industrial catastrophe that occurred at a

pesticide plant owned and operated by Union Carbide (UCIL) inpesticide plant owned and operated by Union Carbide (UCIL) inBhopal, Madhya Pradesh, IndiaBhopal, Madhya Pradesh, India (http://en.wikipedia.org/wiki/Bhopal_disaster)(http://en.wikipedia.org/wiki/Bhopal_disaster)

Amethyl isocyanate leak immediately killed 8 000 people andAmethyl isocyanate leak immediately killed 8 000 people andsubsequently more than 20 000 deaths and 500 000 injuries havesubsequently more than 20 000 deaths and 500 000 injuries havebeen directly attributed to the disaster that has been described asbeen directly attributed to the disaster that has been described as

The Hiroshima of the chemical industryThe Hiroshima of the chemical industry

Source:http://instrumentation.co.za/articles/SA%20Instrumentation%20&%20Control%20Source:http://instrumentation.co.za/articles/SA%20Instrumentation%20&%20Control%20--%20Published%20by%20Technews/bhopal_collage.g%20Published%20by%20Technews/bhopal_collage.gifif

The Bhopal DisasterThe Bhopal Disaster Corporate Irresponsibility??Corporate Irresponsibility??


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CSRCSR MNCs vs. Developing CountriesMNCs vs. Developing Countries

Jabed (2003) argued that the MNCs has set CSR standards toJabed (2003) argued that the MNCs has set CSR standards tosafeguard interests of their own businessessafeguard interests of their own businesses without paying any without paying anyattention to problems it might cause to businesses in theattention to problems it might cause to businesses in thedeveloping countries.developing countries.

Stiglitz (2002) argued that policies such as CSR are forced on theStiglitz (2002) argued that policies such as CSR are forced on the

developing countries to make them developing countries to make them open upopen up their natural their naturalresources, manufacturing and financial sector to western firms.resources, manufacturing and financial sector to western firms.

AmaeshiAmaeshi et al.et al. (2006) argued that socio(2006) argued that socio--economic developmenteconomic developmentchallenges make it difficult for developing countries to adoptchallenges make it difficult for developing countries to adoptpopular western CSR expectations.popular western CSR expectations.

TheThe neoneo--MarxistsMarxists now brand the west as now brand the west as capitalist, imperialistcapitalist, imperialistandand colonialistcolonialist exploiters of the developing countries, a exploiters of the developing countries, aphenomenon they call phenomenon they call neoneo--colonialismcolonialism, characterized by, characterized byincreasing pressure on these countries to accept conditions ofincreasing pressure on these countries to accept conditions ofwestern capitalist system (Arrindell, 1992).western capitalist system (Arrindell, 1992).


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RoyalDutch ShellcontroversiesRoyalDutch Shellcontroversies -- Corporate SocialCorporate SocialExploitation???Exploitation???

Inthe 1990s, KenSaroInthe 1990s, KenSaro--Wiwaled anonWiwaled anon--violentcampaignagainstviolentcampaignagainstenvironmentaldamage caused byShell, inthe Ogonihomelandsenvironmentaldamage caused byShell, inthe Ogonihomelandsofthe NigerDelta, drawing internationalattentiontohisofthe NigerDelta, drawing internationalattentiontohispeople'splight. Shellhad tocease operationsinthe Ogonipeople'splight. Shellhad tocease operationsinthe Ogoniregion.region.

In1995, SaroIn1995, Saro--Wiwaand 8 otherswere executed. SaroWiwaand 8 otherswere executed. Saro--WiwahadWiwahadimplicated Shellduring histreason trialbysaying the ecologicalwarimplicated Shellduring histreason trialbysaying the ecologicalwarthat[Shell]haswaged willbe called to questionsoonerthanlaterandthat[Shell]haswaged willbe called to questionsoonerthanlaterandthecrime ofthe Company'sdirtywarsagainstthe Ogonipeople willalsothecrime ofthe Company'sdirtywarsagainstthe Ogonipeople willalsobe punished. Shellwasfound to be providing moneyand suppliestothebe punished. Shellwasfound to be providing moneyand suppliestotheNigerianmilitary.Nigerianmilitary.

ChristianAid condemned Shellinareportbysaying that despite ShellChristianAid condemned Shellinareportbysaying that despite Shellclaimsof "honestyintegrityand respectforpeople" ithad "failed touseclaimsof "honestyintegrityand respectforpeople" ithad "failed touseitsconsiderable interestinNigeriato bring aboutchange inthe Nigeritsconsiderable interestinNigeriato bring aboutchange inthe Nigerdelta". The reportfound evidence offailurestocleanup oilspills,delta". The reportfound evidence offailurestocleanup oilspills,pollutionofriversand watercourses, and nonpollutionofriversand watercourses, and non--completionof promisedcompletionof promisedprojectsforcommunityimprovement.projectsforcommunityimprovement.

Sources:Sources: http://en.wikipedia.org/wiki/Controversies_surrounding_Royal_Dutch_Shellhttp://en.wikipedia.org/wiki/Controversies_surrounding_Royal_Dutch_Shell

ChristianAid, Behind the MaskChristianAid, Behind the Maskhttp://www.christianhttp://www.christian--aid.org.uk/indepth/0401csr/csr_casestudy1nigeria.pdfaid.org.uk/indepth/0401csr/csr_casestudy1nigeria.pdf


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RoyalDutch ShellcontroversiesRoyalDutch Shellcontroversies -- Corporate SocialExploitationCorporate SocialExploitation???..............contd.???..............contd.

TheThe ShellShell FoundationFoundation:: UKsUKsTheThe GuardianGuardian newspapernewspaper((20062006)) allegedalleged thatthat"An" An attemptattempt byby ShellShell toto portrayportray itselfitself asas aa modelmodel ofof corporatecorporate socialsocialresponsibilityresponsibility waswas underminedundermined lastlast nightnight afterafter WhitehallWhitehall documentsdocumentsshowedshowed itsits charitablecharitable armarm discussingdiscussing aa keykey commercialcommercial projectproject withwith aaBritishBritish governmentgovernment ministerminister..

PricePrice fixingfixing cartelscartels:: InIn SeptSept 20062006,, thethe ECEC finedfined ShellShell $$137137mm forfor theirtheirrolerole inin aa cartelcartel thatthat fixedfixed thethe priceprice ofof bitumenbitumen.. HoustonHouston ChronicleChroniclereportedreported that,that, "the"the EUEU CommissionCommission saidsaid thethe companycompany waswas anan instigator,instigator,tooktook thethe leadershipleadership inin thethe cartelcartel andand waswas aa repeatrepeat offender"offender"..

Sources:Sources: http://en.wikipedia.org/wiki/Controversies_surrounding_Royal_Dutch_Shellhttp://en.wikipedia.org/wiki/Controversies_surrounding_Royal_Dutch_Shell

www.greenpeace.orgwww.greenpeace.org

BrentBrent SparSpar:: ShellsShells planplan toto disposedispose ofof itsits BrentBrentSparSparplatformplatform inin thethe NorthNorth SeaSea waswas challengedchallenged bybyGreenpeaceGreenpeace.. ShellShell eventuallyeventually agreedagreed totodisassembledisassemble itit onshoreonshore ininNorway,Norway, althoughalthough itit hashasalwaysalways maintainedmaintained thatthat itsits originaloriginal planplan toto sinksinkthethe platformplatform waswas safersafer andand betterbetter for for thetheenvironmentenvironment..


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WhyCorporationsshouldhave SocialResponsibilities?WhyCorporationsshouldhave SocialResponsibilities?

Corporationtakesonsocialresponsibilitiestopromote itsCorporationtakesonsocialresponsibilitiestopromote itsownselfownself--interest(interest(EnlightenedSelfEnlightenedSelf--interestinterest).).

Corporationsperceivedasbeingsociallyresponsible mightbeCorporationsperceivedasbeingsociallyresponsible mightberewardedwith extraand/ormore satisfiedcustomers.rewardedwith extraand/ormore satisfiedcustomers.

Employeesmightbe attractedtoworkfor, andevenbe moreEmployeesmightbe attractedtoworkfor, andevenbe morecommittedto, corporationsperceivedasbeingsociallycommittedto, corporationsperceivedasbeingsociallyresponsible (GreeningandTurban, 2000)responsible (GreeningandTurban, 2000)

VoluntarycommittingtosocialactionsandprogrammesmayVoluntarycommittingtosocialactionsandprogrammesmayforestalllegislationandensure greatercorporateforestalllegislationandensure greatercorporate

independence fromgovernment.independence fromgovernment.

LongLong--terminvestmentinsocietymightresultinasafer,terminvestmentinsocietymightresultinasafer,betterbetter--educatedandmore equitable community, whicheducatedandmore equitable community, whichsubsequentlybenefitsthe corporationbycreatingansubsequentlybenefitsthe corporationbycreatinganimprovedandstable contextinwhichtodo businessimprovedandstable contextinwhichtodo business..

BusinessArgumentsBusinessArguments(source: Carne & Matten, 2007)(source: Carne & Matten, 2007) ::


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WhyCorporationsshouldhave SocialResponsibilities?WhyCorporationsshouldhave SocialResponsibilities?

MoralArgumentsMoralArguments(source: Carne & Matten, 2007)(source: Carne & Matten, 2007) :: Corporationscause socialproblems(suchaspollution) andCorporationscause socialproblems(suchaspollution) and

hence have aresponsibilitytosolve those theyhave causedhence have aresponsibilitytosolve those theyhave causedandtopreventfurthersocialproblemsarising.andtopreventfurthersocialproblemsarising.

Being apowerfulsocialactor, shouldensure responsibleBeing apowerfulsocialactor, shouldensure responsiblebalance betweenpowerandresources.balance betweenpowerandresources.

Allcorporate activitieshave socialimpacts, henceAllcorporate activitieshave socialimpacts, hencecorporationscannotescape responsibilityforthose impacts,corporationscannotescape responsibilityforthose impacts,whethertheyare positive, negative orneutral.whethertheyare positive, negative orneutral.

Corporationsrelyonthe contributionofamuchwidersetofCorporationsrelyonthe contributionofamuchwidersetofstakeholdersinsociety, andhence have adutytotake intostakeholdersinsociety, andhence have adutytotake intoaccountthe interestsandgoalsofthese stakeholdersaswellaccountthe interestsandgoalsofthese stakeholdersaswellasthose shareholders(asthose shareholders(stakeholdertheorystakeholdertheory))


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Theories/Models of CSRTheories/Models of CSR

Carolls 4 part model of CSRCarolls 4 part model of CSR

According toAccording toArchie CarrollArchie Carroll(1979), CSR(1979), CSRencompasses theencompasses the

Economic, Legal,Economic, Legal,Ethical andEthical andPhilanthropicPhilanthropicexpectationsexpectationsplaced onplaced onorganizations byorganizations by

society at a givensociety at a givenpoint in timepoint in time

The theory isThe theory isconsidered fairlyconsidered fairlyPragmatic (Pragmatic (Crane &Crane &Matten, 2008Matten, 2008))

Source: Business Ethics (2nd edition), Crane & Matten, 2007


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Theories of CSRcont.Theories of CSRcont.

Stakeholder TheoryStakeholder Theory (Edward Friedman, 1984)(Edward Friedman, 1984)

FirmFirm

EmployEmployeesees

SharehShareholdersolders

SupplieSuppliersrs

CustomCustomersers

FirmFirm

EmployeEmployeeses

ShareholShareholderder

CompetitCompetitorsors

SuppliersSuppliers

CustomeCustomersrs

Govt.Govt.

CivilCivilSocietySociety

Figure: Stockholder Vs Stakeholder model (Figure: Stockholder Vs Stakeholder model (Crane & Matten, 2007Crane & Matten, 2007))


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So, who are the stakeholders??So, who are the stakeholders??

A Stakeholder in an organization is .any group orA Stakeholder in an organization is .any group orindividual who can affect, or is affected by, theindividual who can affect, or is affected by, theachievement of the organizations objectives (Freeman,achievement of the organizations objectives (Freeman,1984:46)1984:46)

A stakeholder of a corporation is an individual or a groupA stakeholder of a corporation is an individual or a groupwhich either is harmed by, or benefits from, thewhich either is harmed by, or benefits from, thecorporation; or whose rights can be violated, or have to becorporation; or whose rights can be violated, or have to berespected, by the corporation (Crane & Matten, 2007)respected, by the corporation (Crane & Matten, 2007)

A Corporation has obligation to all groups who areA Corporation has obligation to all groups who areaffected by its activitiesaffected by its activities


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LegalLegal perspectiveperspective::

There are far more groups apart from shareholdersThere are far more groups apart from shareholdersthat appear to hold a legitimate stake in thethat appear to hold a legitimate stake in thecorporation.corporation.

There are legally binding contracts to suppliers,There are legally binding contracts to suppliers,employees and customers.employees and customers.

An increasingly dense network of laws andAn increasingly dense network of laws and

regulations are being enforced by society to protectregulations are being enforced by society to protectthe rights and claims of various stakeholder groupsthe rights and claims of various stakeholder groups

Why Stakeholders matter??Why Stakeholders matter??


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WhyStakeholdersmatter??WhyStakeholdersmatter??

EconomicEconomic perspectiveperspective::

The majorityofshareholdersdo notinvestin sharesThe majorityofshareholdersdo notinvestin sharespredominantlyto own a company, northeynecessarilyseekpredominantlyto own a company, northeynecessarilyseek

forthe firm to maximize itslongforthe firm to maximize itslong--term profitability.term profitability.

In the firstplace,In the firstplace, shareholdersoften buysharesforshareholdersoften buysharesforspeculative reasonsspeculative reasons, anditisthe developmentofthe share, anditisthe developmentofthe shareprice thatistheirpredominantinterestprice thatistheirpredominantinterest andnotownershipandnotownershipin a physicalcorporation.in a physicalcorporation.

LongLong--term interestsof groupssuchascustomers, employeesterm interestsof groupssuchascustomers, employeesorsuppliersshouldpreside overthe shortorsuppliersshouldpreside overthe short--term highlyterm highlyspeculative interestsofshareowners.speculative interestsofshareowners.

lecture 3 (chapter 2)

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