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Corporation and CSR
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What is a Corporation?
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Corporation
A corporation is defined in terms of legal status and the
ownership of assets.
Legally, corporations are typically regarded as
independent from those who work in them, managethem, invest in them or receives products or services
from them.
For this reason, corporations are regarded as having
perpetual succession.
perpetual succession: As an entity they can survive the
death of any individual investors, employees, or
customers- they simply need to find new one.
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Corporation This legal status leads onto the second key defining feature of
corporation.
Rather than shareholders or managers owning the assetsassociated with a corporation, the corporation itself usually ownsthe assets.
Thus, the factories, offices, computers, machines and other
assets operated by, say, the Anglo-Dutch consumer productsgiant Unilever, are the property of Unilever, not of itsshareholders.
Shareholders simply own a share in the company that entitlesthem to a dividend and some say in certain decisions affecting thecompany.
They could not for instance, arrive at Unilevers HQ and try toremove a computer or a desk and take it home, because it isUnilever that owns that computer or desk, not the shareholder.
Similarly, employees, customers, suppliers etc. deal with, andagree contracts with, the corporation, not with shareholders.
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Corporation
The corporations are typically regarded as
artificial person in the eyes of law: They havecertain rights and responsibilities in society, just as an
individual citizen might.
Corporations are notionally owned by
shareholders, but exist independently of
them: The corporation holds its own assets and
shareholders are not responsible for the debts ordamages caused by the corporation (they have limited
liability).
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Corporation
Managers and directors have a fiduciary
responsibility to protect the investment of
shareholders :
This means that senior management is
expected to hold shareholders investment
in trust and act in their best interests.
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Can a corporation have Social
Responsibility?
Around 1970, Nobel prize winning
economist Milton Friedman published anarticle under the provocative title The
social responsibility of business is to
increase its profits.
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Milton Friedman line of Arguments
1.Only human being have a moralresponsibility for their actions.
Corporations are not human beings andtherefore cannot assume true moralresponsibility for their actions. Sincecorporations are set up by individual human
beings, it is those human beings who are thenindividually responsible for the action of thecorporation.
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.Milton Friedman line of
Arguments It is managers responsibility to act
solely in the interests of shareholders:
As long as a corporation abides by the
legal framework society has setup for
business, the only responsibility of the
managers is to make profit, because it is
for this task that the firm has been set upand the managers have been employed.
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Milton Friedman line of Arguments
Social Issues and problems are theproper province of the state rather thancorporate managers.: Friedmans third
main point was that managers should notand cannot decide what is in societys bestinterests. This is the job of government.Corporate managers are neither trained toset and achieve social goals, nor (unlikepoliticians are they democratically electedto do so.
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In fact Bakans (2004) basic premise is
that the legal designation of the
corporation makes it unable to act except
in thoroughly self-interested ways.
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Case 1:Scope of Corporate
Governance Talks about economic growth with equity
as the task of corporate governance.
Maruti did it successfully notwithstandingthe regulation of a public sector company.
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Case 2: Lends direction to the
Solution Offers sound justification for revisiting the process andregulations of corporate governance with a view to makethe business enterprise trustworthy, transparent,accountable and faithful.
Thus, Corporate governance is not about complying withsome regulatory provisions on paper, but about fulfillingfair economic obligations to direct stakeholders, andethical and environmental obligations to the society forsustained growth and wellbeing.
Promoters and directors should not take advantage ofshortcomings of the financial system or in regulations forpersonal gains and cause hardship in lives of many inthe society.
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Case 3
This case is a strong reminder to the basics of business.
Sustainable development is possible only with
sustainable ethics.
It illustrates how, business when in a partying mood ingood times, are oblivious to their duties and
responsibilities towards society and stakeholders.
It also warns of crises that are engulfing the world,
because of the absence of equities and presence of a
selfish approach in business.
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Altogether, the three cases
span th
e scope and concerns ofethical corporate governance;
clarifying the social
responsibility that businessenterprise must fulfill for
sustained development of thebusiness and inclusive growth
of the society,15
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Corporate Social Responsibility
: Business Reasons Corporation perceived as being socially
responsible might be rewarded with extra
and/or more satisfied customers, whilst
perceived irresponsibility may result in
boycotts or other undesirable consumer
actions.
For e.g. , oil giant ExxonMobil.
ExxonMobil has experienced an
international consumer boycott throughout
the 2000s, coordinated by Greenpeace. 16
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..Corporate Social Responsibility
: Business Reasons Employees might be attracted to work for, and
even be more committed to, corporations
perceived as being socially responsible. Making a positive contribution to society might
be regarded as a long-term investment in a
safer, better-educated and more equitable
community. This subsequently benefits the corporation by
creating an improved and stable context in
which to do business.17
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In arguing against CSR, Friedman (1970)in fact does not dispute the validity of such
actions, but rather says that when they are
carried out for reasons of self-interest, arenot CSR al all, but merely profit-
maximisation under the Cloak of social
responsibility.
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Moral Arguments for CSR
Corporation causes social problems (such
as pollution) and hence have a
responsibility to solve those they have
cause and to prevent further social
problem arising.
As powerful social actors, with recourse to
substantial resources, corporation shoulduse their power and resources responsibly
in the society.
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All corporate activities have social impacts
of one sort or another, whether through
the provision of products and services, the
employment of workers or some other
corporate activity. Hence, corporation
cannot escape responsibility for those
impacts, whether they are positive,negative, or neutral.
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Moral Arguments and CSR
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Moral Arguments and CSR
Corporations rely on the contribution of a
much wider set of constituencies, or
stakeholders in society (such as
consumers, suppliers, local communities),
rather than just shareholders, and hence
have a duty to take into account the
interests and goals of these stakeholdersas well as those of shareholders.
21
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Carrolls four part model of CSR
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Philanthropic
Responsibilities
Ethical Responsibilities
Legal
Responsibilities
Economic Responsibilities
Desired by the
Society
Expected by the
society
Required by the
Society
Required by the
Society
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Carrolls four part model and
Nature of CSR Economic Responsibility: Companies haveshareholders who demand a reasonable
returns on their investments, they have
employees who have safe and fairly paidjobs, they have customer who demand good
quality products at a fair price etc. This is by
definition the reason w
hy businesses are setup in the society and so the first responsibility
of business is to be a properly functioning
economc unit and to stay in business.23
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Carrolls four part model
and Nature of CSR
Legal Responsibility: The legalresponsibility of corporations demands
that business abide by the law and play
by the rules of the game
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Carrolls four part model
and Nature of CSR Ethical Responsibility: Theseresponsibility oblige corporation to do what
is right and fair.
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Carrolls four part model
and Nature of CSRPhilanthropic Responsibility: The
Greek word philanthropy means literally
the love of the fellow human. By using
this idea in a business context, the model
incorporates activities that are within the
corporations direction to improve the
quality of life of employees, localcommunities, and the ultimately society in
general.
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Thus, the CSR encompasses
the economic, legal, ethical, andphilanthropic expectations
placed on organisation by
society at a given point of time
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CSR and Strategy-Corporate
Social Responsiveness Corporate Social Responsiveness refersto the capacity of a corporation to respond
to social pressures.
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.CSR and Strategy-Corporate
Social ResponsivenessReaction- Denies any responsibility forsocial issues, for example by claiming that
they are the responsibility of the
government.
Defence-Admits responsibility but fights it,
by adpoting an approach based mainly on
superficial public relations rather thanpositive action.
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.CSR and Strategy-Corporate
Social Responsiveness
Accommodation: The corporation
accepts responsibility and does what isdemanded of it by relevant groups.
Proaction-The corporation seeks to go
beyond industry norms and anticipates
future expectations by doing more than is
expected.
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CSR
CSR is not the social service wing of a
company that undertakes some social
projects.
It is an integral part of the companys
governance that should identify and
undertake all such actions-including
environment protection-As wouldmaximise the probability of accomplishing
its stated mission and vision for long term
survival and sustained growth.31