CONTENT Business Ethics History Overview Corporate Social Responsibility History Argument For and Against Corporate Social Responsibility The Shareholder Concept Contemporary Social Issues Environmental Issues Global Issues Technological Issues The Growing Importance of Corporate Social Responsibility .

Academics attempting to understand business behavior employ descriptive methods. even for merriment and diversion. The range and quantity of business ethical issues reflects the interaction of profit-maximizing behavior with non-economic concerns. Business ethics and the resulting behavior evolved as well. As time passed. Business ethics has both normative and descriptive dimensions. . For example. The emergence of large corporations with limited relationships and sensitivity to the communities in which they operate accelerated the development of formal ethics regimes. the field is primarily normative. today most major corporations promote their commitment to non-economic values under headings such as ethics codes and social responsibility charters. legitimate criticism of business practices was attacked for infringing the "freedom" of entrepreneurs and critics were accused of support from communists This scuttled the discourse of business ethics both in media and academia.000 students. However. As a corporate practice and a career specialization. European business schools adopted business ethics after 1987 commencing with the European Business Ethics Network (EBEN) In 1982 the first single-authored books in the field appeared. or in some contrivance to raise prices. History Business ethical norms reflect the norms of each historical period. Ethics implicitly regulates areas and details of behavior that lie beyond governmental control. both within major corporations and within academia. media and business firms by the end of the Cold War. Interest in business ethics accelerated dramatically during the 1980s and 1990s. such as the savings and loan crisis. centers and journals of business ethics. Governments use laws and regulations to point business behavior in what they perceive to be beneficial directions. Business was involved in slavery colonialism. It applies to all aspects of business conduct and is relevant to the conduct of individuals and entire organizations.Business Ethics Business ethics (also known as corporate ethics) is a form of applied ethics or professional ethics that examines ethical principles and moral or ethical problems that arise in a business environment. but the conversation ends in a conspiracy against the public. The idea of business ethics caught the attention of academics. possibly trying to distance themselves from the business scandals of the day. and the cold war The term 'business ethics' came into common use in the United States in the early 1970s. using some twenty textbooks and at least ten casebooks along supported by professional societies. and many behaviors that were once generally accepted became objectionable. The Society for Business Ethics was started in 1980. By the mid-1980s at least 500 courses in business ethics reached 40. Adam Smith said. "People of the same trade seldom meet together. Firms started highlighting their ethical stature in the late 1980s and early 1990s. those norms evolved.

"There is neither a separate ethics of business nor is one needed". In the US and most other nations corporate entities are legally treated as persons in some respects.. provided they stay within the law. and the marketing of corporations' ethics policies. both those embodied in law and those embodied in ethical custom". Ethical issues include the rights and duties between a company and its employees. This can be interpreted to imply that they have independent ethical responsibilities. suppliers. Friedman also said. Corporate entities are legally considered as persons in USA and in most nations. Duska views Friedman's argument as consequentiality rather than pragmatic. implying that standards of personal ethics cover all business situations. if business has no ethical obligations. its fiduciary responsibility to its shareholders. corporate. However. implying that unrestrained corporate freedom would benefit the most in long term Similarly author business consultant Peter Drucker observed. other institutions could make the same claim which would be counterproductive to the corporation. then sacrificing profits to other concerns is a violation of its fiduciary responsibility. "the only entities who can have responsibilities are individuals .. legal issues such as the ethical debate over introducing a crime of corporate manslaughter. The 'corporate persons' are legally entitled to the rights and liabilities due to citizens as persons. Another view of business is that it must exhibit corporate social responsibility (CSR): an umbrella term indicating that an ethical business must act as a responsible citizen of the communities in which it operates even at the cost of profits or other goals. sue and be sued and are subject to taxation.Overview Business ethics reflects the philosophy of business. one of whose aims is to determine the fundamental purposes of a company. do corporate executives.. no. generally will be to make as much money as possible while conforming to their basic rules of the society. For example. Duska argues that stakeholders have the right to expect a business to be ethical. customers and neighbors. . Related issues include governance. they can hold title to property. A business cannot have responsibilities. political contributions.. have responsibilities in their business activities other than to make as much money for their stockholders as possible? And my answer to that is. Issues concerning relations between different companies include hostile take-over and industrial espionage. they do not." A multi-country 2011 survey found support for this view among the "informed public" ranging from 30-80%. Peter Drucker in another instance observed that the ultimate responsibility of company directors is not to harm—premium non noncore. although their free speech rights are limited. If a company's purpose is to maximize shareholder returns. Economist Milton Friedman writes that corporate executives' "responsibility. So the question is.

including consumer and product laws. business ethics usually focuses on the moral judgments and behavior of individuals and groups within organizations. and other special interest groups. The legal responsibilities relate to the expectation that organizations will comply with the laws set down by society to govern competition in the marketplace. and philanthropic responsibilities in addition to their responsibilities to earn a fair return for investors and comply with the law. A traditional view of the corporation suggests that its primary. the discretionary responsibilities of corporations refer to society's expectation that organizations be good citizens. legal. and discretionary expectations that society has of organizations at a given point in time" (Carroll and Buchholtz 2003. but also make proactive efforts to anticipate and meet the norms of society even if those norms are not formally enacted in law. CSR requires organizations to adopt a broader view of its responsibilities that includes not only stockholders. Carroll and Buchholtz's four-part definition of CSR makes explicit the multi-faceted nature of social responsibility. the study of business ethics may be regarded as a component of the larger study of corporate social responsibility. ethical. including employees. or stockholders. ethical. p. but many other constituencies as well. ethical. environmental groups. This means that organizations are expected to do more than just comply with the law. such as the expectation that organizations will conduct their affairs in a fair and just way. customers. Collectively. legal. However. While CSR encompasses the economic. and federal governments. . and discretionary responsibilities of organizations. Finally. The economic responsibilities cited in the definition refer to society's expectation that organizations will produce good and services that are needed and desired by customers and sell those goods and services at a reasonable price. the various groups affected by the actions of an organization are called "stakeholders. environmental laws. Organizations have thousands of legal responsibilities governing almost every aspect of their operations. profitable. The ethical responsibilities concern societal expectations that go beyond the law. the local community." The stakeholder concept is discussed more fully in a later section. suppliers. Corporate social responsibility is related to. Thus. local. state. but not identical with. and to keep shareholder interests in mind. The concept of corporate social responsibility means that organizations have moral. It may also involve donating employee expertise and time to worthy causes. business ethics. Organizations are expected to be efficient.Corporate Social Responsibility (CSR) Corporate social responsibility (CSR) can be defined as the "economic. 36). if not sole. and employment laws. This may involve such things as philanthropic support of programs benefiting a community or the nation. responsibility is to its owners.

such as the Sherman Antitrust Act. In the century after Adam Smith. this model suggested that the needs and desires of society could best be met by the unfettered interaction of individuals and organizations in the marketplace. although many of the great tycoons of the late nineteenth century were among the greatest philanthropists of all time. were exploitative of workers. Millions of people obtained jobs that paid more than they had ever made before and the standard of living greatly improved. especially in Europe and the United States. But. legal. it is probably accurate to say that all societies at all points in time have had some degree of expectation that organizations would act responsibly. Based on the general idea that those with great power have great responsibility. However. By acting in a self-interested manner. In essence. Indeed. In the eighteenth century the great economist and philosopher Adam Smith expressed the traditional or classical economic model of business.History The nature and scope of corporate social responsibility has changed over time. individuals would produce and deliver the goods and services that would earn them a profit. In the late nineteenth century many of these individuals believed in and practiced a philosophy that came to be called "Social Darwinism. by today's standards at least. Laws and regulations. were enacted to rein in the large corporations and to protect employees. . in simple form. the Industrial Revolution contributed to radical change. The viewpoint expressed by Adam Smith over 200 years ago still forms the basis for free-market economies in the twenty-first century. sometimes called the "social gospel. consumers. Large organizations developed and acquired great power. and environmentalism affected society's expectations of business. the community. even brutal. even Smith recognized that the free market did not always perform perfectly and he stated that marketplace participants must act honestly and justly toward each other if the ideals of the free market are to be achieved. by some definition. their giving was done as individuals. Between 1900 and 1960 the business world gradually began to accept additional responsibilities other than making a profit and obeying the law. and society at large. Thus. This type of philosophy justified cutthroat." advocated greater attention to the working class and the poor. In the 1960s and 1970s the civil rights movement. The labor movement also called for greater social responsiveness on the part of business. Big business was criticized as being too powerful and for practicing antisocial and anticompetitive practices. competitive strategies and did not allow for much concern about the impact of the successful corporation on employees. consumerism. Many of the principles espoused by Smith were borne out as the introduction of new technologies allowed for more efficient production of goods and services. at the same time that many of them were giving away millions of dollars of their own money. ethical. is the idea that the principles of natural selection and survival of the fittest are applicable to business and social policy. but also meet the needs of others. An associated movement. not as representatives of their companies. The concept of CSR is a relatively new one—the phrase has only been in wide use since the 1960s." which. or the larger society. the companies that made them rich were practicing business methods that. Around the beginning of the twentieth century a backlash against the large corporations began to gain momentum. and discretionary expectations placed on organizations may differ. and their founders and owners became some of the richest and most powerful men in the world. while the economic.

This view of corporate social responsibility is the prevailing view in much of the world today. . The sections that follow provide additional details related to the corporate social responsibility construct. First. to address the issue. Then. which is central to the CSR construct. lead to positive outcomes for society. If the operation of the free market cannot solve a social problem. albeit while complying with the law. This was based on the view that corporations should go beyond their economic and legal responsibilities and accept responsibilities related to the betterment of society. Arguments for and against corporate social responsibility The major arguments for and against corporate social responsibility are shown in Exhibit 1. from a utilitarian perspective. it becomes the responsibility of government. is discussed. who has argued that the primary responsibility of business is to make a profit for its owners. several of the major social issues with which organizations must deal are reviewed. the stakeholder concept. Furthermore. society began to expect business to voluntarily participate in solving societal problems whether they had caused the problems or not. and the environment. The "economic" argument against CSR is perhaps most closely associated with the American economist Milton Friedman.many called for the business world to be more proactive in (1) ceasing to cause societal problems and (2) starting to participate in solving societal problems. Finally. product safety. the self-interested actions of millions of participants in free markets will. arguments for and against the CSR concept are reviewed. Many legal mandates were placed on business related to equal employment opportunity. According to this view. worker safety. not business.

and environmental practices of corporations. AGAINST Taking on social and moral issues is not economically feasible. is that since large corporations create many social problems.Arguments For and Against CSR FOR The rise of the modern corporation created and continues to create many social problems. marketing. bottom-line perspective and realize that investments in society today will reap the benefits in the future. they hurt their competitive position relative to other businesses. One view. but not well versed in dealing with complex societal problems. Corporations should focus on earning a profit for their shareholders and leave social issues to others. This "capability" argument suggests that business executives and managers are typically well trained in the ways of finance. Those in the corporate world are not equipped to deal with social problems. they should attempt to address and solve them. some argue that those in business are ill-equipped to address social problems. Finally. Those who are most capable should address social issues. it is in corporations' best interest to assume social responsibilities. Those holding this view criticize the production. A very different argument in favor of corporate social responsibility is the "self-interest" argument. Part of the capability argument also suggests that corporations can best serve societal interests by sticking to what they do best. There are several arguments in favor of corporate social responsibility. accounting. This view suggests that corporate involvement in social issues may actually make the situation worse. According to Carroll and Buchholtz. but those in another country do not. the corporate world should assume responsibility for addressing these problems. and in conducting their operations in an open and honest manner. since CSR is increasingly becoming a global concern. it may be in the corporate world's best . This is a long-term perspective that suggests corporations should conduct themselves in such a way in the present as to assure themselves of a favorable operating environment in the future. and operations management. It will increase the chances that they will have a future and reduce the chances of increased governmental regulation. Large corporations have huge reserves of human and financial capital. safe products. Thus. Assuming social responsibilities places those corporations doing so at a competitive disadvantage relative to those who do not. They suggest that corporations can do a better job of producing quality. which is providing quality goods and services and selling them at an affordable price to people who desire them. They should devote at least some of their resources to addressing social issues. held by critics of the corporate world. Furthermore. Therefore. marketing. they do not have the knowledge or skills needed to deal with social issues. In the long run. the differences in societal expectations around the world can be expected to lessen in the coming years. The "competitive" argument recognizes the fact that addressing social issues comes at a cost to business. This argument is particularly relevant in a globally competitive environment if businesses in one country expend assets to address social issues. To the extent that businesses internalize the costs of socially responsible actions. This view holds that companies must look beyond the short-term.

but may believe that they have a moral right to question the firm's environmental policies and to lobby the organization to develop environmentally friendly policies. stakeholders are individuals and groups that are affected by an organization's policies. Finally. For example. and it possesses tremendous financial resources. are public or special interest groups that do not have a direct stake in the organization but are still affected by its operations. the corporate world may forestall governmental intervention in the form of new legislation and regulation. some suggest that businesses should assume social responsibilities because they are among the few private entities that have the resources to do so. but may perceive that they have moral rights related to the organization's operations. have multiple stakeholders. Lawrence. All companies. businesses should utilize some of their human and financial capital in order to "make the world a better place. such as employees and owners. has annual revenues that exceed the annual GNP of some countries.interests to engage in socially responsive activities because. and Weber. and actions. . especially large corporations. One way of classifying stakeholder groups is to classify them as primary or secondary stakeholders. Some stakeholders. an environmental group may not have a legal right in regard to a company's use of natural resources." The Stakeholder Concept According to Post. for example. A "stake" implies that one has an interest or share in the organization and its operations. according to Carroll and Bocholt. procedures. Other stakeholders may not have specific rights granted by law. may have specific legal rights and expectations in regard to the organization's operations. Primary stakeholders have some direct interest or stake in the organization. Secondary stakeholders. The corporate world has some of the brightest minds in the world. (Wal-Mart. in contrast. by doing so. per Carroll and Bocholt. Exhibit 2 classifies some major stakeholder groups into primary and secondary categories.) Thus.

and Federal Government Regulatory Bodies Civic Institutions and Groups Special Interest Groups Trade and Industry Groups Media Competitors .Primary Stakeholders Shareholders (Owners) Employees Customers Business Partners Communities Future Generations The Natural Environment Secondary Stakeholders Local. State.

The media reports on and investigates the actions of many companies. they do play an active role in trying to ensure that organizations accept and meet their responsibilities to primary stakeholder groups. and there is both governmental and societal pressure on corporations to adhere to stricter environmental standards and to voluntarily change production processes in order to do less harm to the environment. some not. It would not be possible to adequately describe all of the social issues faced by business. Finally. attempting to ensure that owners receive an adequate return on their investment. to local communities. This section will briefly discuss three contemporary issues that are of major concern: the environment. one might argue that organizations have a social responsibility to compete in the marketplace in a manner that is consistent with the law and with the best practices of their industry. Corporations have long been criticized for their negative effect on the natural environment in terms of wasting natural resources and contributing to environmental problems such as pollution and global warming. Trade associations and industry groups are also affected by an organization's actions and its reputation. The use of fossil fuels is thought to contribute to global warming. and to the other companies with whom they do business. particularly large organizations. so that all competitors will have a fair chance to succeed. Environmental Issues. These obligations include. It is likely that corporate responsibilities in this area will increase in the coming years. and value. safety. For example. Other issues related to the natural environment include waste disposal. . and land degradation. deforestation. Many social commentators also suggest that companies have a direct responsibility to future generations and to the natural environment. Employees are also primary stakeholders who have both legal and moral claims on the organization. Organizations are accountable to these secondary stakeholders. but are not limited to.The owners of a firm are among the primary stakeholders of the firm. and technology issues. An organization has legal and moral obligations to its owners. which can be greatly affected by the actions of resident organizations and thus have a direct stake in their operations. global issues. An organization's responsibilities are not limited to primary stakeholders. Organizations also have specific responsibilities to their customers in terms of producing and marketing goods and services that offer functionality. There are many others. acid rain. Although governmental bodies and regulatory agencies do not usually have ownership stakes in companies in free-market economies. and most companies accept that they must contend with and effectively "manage" their relationship with the media. even an organization's competitors can be considered secondary stakeholders. Organizations must also contend with civic and special interest groups that purport to act on behalf of a wide variety of constituencies. Contemporary Social Issues Corporations deal with a wide variety of social issues and problems. as they are obviously affected by organizational actions. some directly related to their operations.

companies. but there are many opponents to it. and ethical issues brought on by the increasing globalization of business. Corporations increasingly operate in a global environment. and increased human rights abuses. Some U. Whether one is an opponent or proponent of globalization. Most purport to pursue not only the goal of increased revenues and profits. A related issue is that of safety conditions in plants around the world. but has also opened up the possibility of abuse by corporations. but also the goal of community and societal betterment. destruction of the environment. Few companies totally disregard social issues and problems. and cloning. As our technological capabilities continue to advance.S. They also argue that globalization primarily benefits the wealthy and widens the gap between the rich and the poor. does not change the fact that corporations operating globally face daunting social issues. ethical. Corporations must decide which the responsible option is: adopting the standards of the countries in which they are operating or imposing a common standard world-wide. Research suggests that those corporations that develop a reputation as being socially responsive and ethical enjoy higher levels of performance.Global Issues. higher wages for workers worldwide. For example. it is likely that the responsibilities of corporations in this area will increase dramatically. the ultimate motivation for corporations to practice social responsibility should not be a financial motivation. All of these issues have far-reaching societal and ethical implications. Many large corporations are multinational in scope and will continue to face legal. however. However. This problem is complex because societal standards and expectations regarding working conditions and the employment of children vary significantly around the world. Issues of privacy and the security of confidential information must be addressed. and economic development in impoverished nations. Another issue in global business is the issue of marketing goods and services in the international marketplace. Perhaps the most pressing issue is that of labor standards in different countries around the world. Proponents of globalization argue that open markets lead to increased standards of living for everyone. Biotechnology companies face questions related to the use of embryonic stem cells. Technology Issues. but a moral and ethical one. The globalization of business appears to be an irreversible trend. Critics suggest that globalization leads to the exploitation of developing nations and workers. Another contemporary social issue relates to technology and its effect on society. There is no question that the legal. genetic engineering. the Internet has opened up many new avenues for marketing goods and services. for example. . Many corporations have been stung by revelations that their plants around the world were "sweatshops" and/or employed very young children. Corporate social responsibility is a complex topic. social. and discretionary expectations placed on businesses are greater than ever before. have marketed products in other countries after the products were banned in the United States.

social and corporate governance risks within their portfolios. In the U. exchange traded funds (ETFs) and other vehicles—in which the general public or institutions can invest.S. will . In the wake of corporate scandals. companies are responding to investor demands by re-examining the way they do business—from the reduction of emissions and energy conservation to fair trade and labor standards. As a result. CSR: Good for Business Inclusion in responsible investment indexes has its rewards. One of the tenets of the FTSE4Good Index is to challenge companies to improve their corporate social responsibility practices for the good of the environment and human rights. In turn. RI accounts for an estimated $2. The FTSE4Good Index Series was created in 2001 to offer a series of transparent. Managers are now using RI indexes to create investable products—mutual funds. supply chain and anti-bribery criteria in order to raise the bar for its constituent companies. and also as a measure for their success in meeting CSR goals. market alone. both institutional and individual investors are turning to index-based investments to help them navigate the CSR landscape and take the guesswork out of responsible investment.3 trillion in assets under management. Today. many companies use the globally reputable FTSE4Good standards in developing corporate social responsibility strategies and initiatives. Since its inception. As responsible investment moves from a niche to mainstream investment strategy. and research estimates by financial consultancy Client predict that the RI market in the U. As a result. rules-based and pre-screened benchmark and tradable indexes. and the tightening of carbon emissions standards over the past decade. investors have begun to seriously evaluate the environmental. companies interested in capturing these investments are striving to improve their CSR practices and policies in order to be included and remain in these indexes. Each year. FTSE4Good has tightened its environmental.S. FTSE4Good Index Series FTSE first became involved in responsible investment due to the growing demand from investors for tools to measure the numerous and varying global standards of corporate social responsibility.The Growing Importance Of Corporate Social Responsibility Once a niche investment strategy. Responsible Investment (RI) has become a priority for individual and institutional investors globally. index investment is steadily increasing. In this way. it becomes quite difficult for investors to keep up to date on which companies in their portfolios have stringent corporate social responsibility (CSR) policies. FTSE4Good is able to maintain its reputation as the leading global standard for determining and measuring responsible investment. the criteria evolve to reflect what constitutes good practice globally. As responsible investment standards continue to evolve.

shareholders. thereby reducing employee turnover rates and recruitment costs. By focusing on and reducing their environ-mental impacts. one of the UK’s largest institutional investors and Business in the Community. legislators. Benefits of FTSE4Good Index Series Investors A benchmark for responsible investment funds . and also define appropriate strategies and responses to these problems. responsible behavior by executives and other employees should be rewarded over both the short and long term. employees. such as those included in FTSE4Good. Finally. They should put in place internal audit systems to ensure compliance with these standards. they are also saving money on electricity bills. an association of companies dedicated to CSR. Companies with high CSR standards. sought to define and report on the role that corporate boards should play in directing CSR. and therefore manage risk and enhance their corporate reputation. challenges and risks specific to their markets. Where to Begin A recent study conducted by FTSE in conjunction with Insight Investment.reach $3 trillion by 2011. Companies with rigorous corporate responsibility standards are also best positioned to attract and retain high quality staff. The study found that boards should be charged with: Setting values and standards Developing CSR strategy Being constructive about regulation Using internal controls to assure and delegate responsibility Aligning performance management Creating a culture of integrity Boards should ensure that CSR standards are explicitly stated. customers and the general public. resource use and waste removal. consistent with the values of the business and effectively communicated to employees. Companies that uphold stringent CSR standards and are part of responsible investment indexes are best poised to attract these assets. boards must support self-regulatory standards and ensure that the company meets its own goals. Rather than wait for imposed regulation. are able to clearly demonstrate responsibility to investors. They should take into account the conditions. and corporate values should be cultivated from the top down by fostering a culture in which responsible behavior is expected and irresponsibility is penalized.

foundations & pension plans) .g. trusts.A basis for tracker funds A starting universe for actively managed funds A basis for a range of structured products For engagement strategies Companies A framework for ‘responsible’ business management A ‘reputational’ badge in stakeholder communications To gain access to ethical and socially responsible investors’ funds Non-Governmental Organizations (NGOs) A list to screen potential partners and donors A mechanism to contribute to the encouragement of responsible and sustainable business practice throughout the world For use within their own investments (e.

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