MGF4053 Business Ethics

Topic 2: Social Responsibility

Concept of Social Responsibility Arguments on Social Responsibility Approach on Social Responsibility

Overview

Concept of Social Obligation The practice of appropriate behavior in a public

setting, regardless of the behavior's legality. In investing, social responsibility helps inform the investment decisions of some individuals and companies.

The action of an organization that are targeted toward achieving a social benefit over and above maximizing profits for its shareholders and meeting all its legal obligations.

Social responsibility is a concept whereby companies on a voluntary basis integrate social and environmental concerns in their business operations and in the interaction with their stakeholders.

A balanced approach for organizations to address economic, social and environmental issues in a way that aims to benefit people, communities and society.

Concept of Social Resposibility

Corporate Social Responsibility Howard R. Bowen (1953)

“CSR is an obligation that arises from the impact corporate decisions and actions have on the lives of people. Companies should conduct their business in line with the objectives and values of the societies in which they operate”

Davis (1960)“Businessmen should oversee the operation of an economic system that fulfills the expectations of the public. This means in turn that the economy’s means of production should be employed in such a way that production and distribution should enhance total socio-economic welfare.”

Edwin M. Epstein (1987) “CSR relates primarily to achieving outcomes from organizational decisions concerning specific issues or problems which have beneficial rather than adverse effects on pertinent corporate stakeholders. The normative correctness of the products of corporate action have been the main focus of CSR”

Open and transparent business practices that are based on ethical values and respect for employees, communities, and the environment. It is designed to deliver sustainable value to society at large, as well as to shareholders. (Aaronson , 2003 )

The economic, legal, ethical, and discretionary expectations that society has of organizations at a given point in time. (Carroll and Buchholtz, 2003)

Carroll and Buchholtz's four-part definition of CSR makes explicit the multi-faceted nature of social responsibility.

The economic responsibilities refer to society's expectation that organizations will produce good and services that are needed and desired by customers and sell them at a reasonable price. Organizations are expected to be efficient, profitable, and to keep shareholder interests in mind.

The legal responsibilities relate to the expectation that organizations will comply with the laws set down by society to govern competition in the marketplace.

The ethical responsibilities concern societal expectations that organizations will conduct their affairs in a fair and just way. This means that organizations are expected to do more than just comply with the law, but also make proactive efforts to anticipate and meet the norms of society even if those norms are not formally enacted in law.

The discretionary responsibilities of corporations refer to society's expectation that organizations be good citizens. This may involve such things as philanthropic support of programs benefiting a community or the nation. It may also involve donating employee expertise and time to worthy causes.

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Figure 2.1: Organizational Stakeholders

Factors pushing business towards CSR

The shrinking role of government◦Shrinking government resources, coupled with a

distrust of regulations, has led to the exploration of voluntary and non-regulatory initiatives instead

Increased customer interest◦The ethical conduct of companies exerts a growing

influence on the purchasing decisions of customers Growing investor pressure

◦ Investors are changing the way they assess companies' performance, and are making decisions based on criteria that include ethical concerns

Competitive labour markets◦Employees are increasingly looking beyond benefits,

and seeking out employers whose philosophies and operating practices match their own principles

◦ In order to hire and retain skilled employees, companies are being forced to improve working conditions.

Supplier relation◦Many companies are taking steps to ensure that their

partners conduct themselves in a socially responsible manner

◦e.g, introducing codes of conduct for their suppliers

Enlightened self-interest - creating a synergy of ethics, a cohesive society and a sustainable global economy where markets, labour and communities are able to function well together

Social investment - contributing to physical infrastructure and social capital is increasingly seen as a necessary part of doing business.

Key drivers for CSR

Transparency and trust - business has low ratings of trust in public perception. There is increasing expectation that companies will be more open, more accountable and be prepared to report publicly on their performance in social and environmental arenas

Increased public expectations of business - globally companies are expected to do more than merely provide jobs and contribute to the economy through taxes and employment.

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Figure 2.2: Arguments for and Against Social Responsibility

Arguments on Social Responsibility1) Profit Maximization2) Resource Fit3) Fairness – domination by business4) The ‘Iron Law of Responsibility’

Argument for social responsibility

Positive effect on reputation (which company can gain more customers, employees, and

benefits)

Profit Maximization

Argument for social responsibility

Business have valuable resources that could be used to tackle social problems

Generating management talent and innovation

Helping with the management of operational performance

Resource Fit

Argument for social responsibility

Davis and Blomstrom observe,“combining social activities with the

established economic activities of business would give business and excessive

concentration of power

Fairness – domination by business

Argument for social responsibility

Davis has propounded what he called the ‘The Iron Law of Responsibility’

Company will lose their power if they do not act responsible

The interests of businesses to use their power in a way that satisfies other societal actors

The ‘Iron Law of Responsibility’

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Figure 4.5: Approaches to Social Responsibility

Obstructionist Stance◦ Do as little as possible ◦ Avoids social responsibilty and reflects mainly economic

priorities and "tries to stop or block what is going on".

Defensive Stance◦ Do only what is legally required and nothing

more.◦ Seeks protection by doing the minimum legally required

and"argues that nothing has been done wrong by them despite possible bad outcomes".

Approaches to Social Responsibility (cont’d)

Accommodative Stance◦ Meet legal and ethical obligations and go beyond

that in selected cases.◦ Accepts social responsibility and tires to satisfyeconomic,

legal, and ethical criteria and "provides information and facts anddoesn't try to hide things".

Proactive Stance◦ Organization views itself as a citizen and

proactively seeks opportunities to contribute to society.

◦ Meets all the criteria of social responsibility, including discretionary performance and "actively provides and tries to figure out how to helpinstead of being reactive“

Approaches to Social Responsibility (cont’d)

Human resourcescan be an aid to recruitment and retention.help to improve the perception of a company

among its staff. Risk management

corruption scandal or environmental accidents Brand differentiation

play a role in building customer loyalty based on distinctive ethical values.

POTENTIAL BENEFIT OF IMPLEMENTING CSR

Choosing to operate on an ethical level that is higher than what the law requires

Making contribution to civil and charitable organizations and nonprofit institutions

Providing benefits for employees and improving the quality of the life in the workplace beyond economic and legal requirements

GENERAL ACTIVITIES OF CSR

Taking advantage of an economic opportunity that is judged to be less profitable but more socially desirable than more alternatives

Using corporate resources to operate a program that address some major social problem

CONT:

Those corporations that develop a reputation as being socially responsive and ethical enjoy higher levels of performance. However, the ultimate motivation for corporations to practice social responsibility should not be a financial motivation, but a moral and ethical one.

Corporations should go beyond their economic and legal responsibilities and accept responsibilities related to the betterment of society.

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