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Wenaldy Andarisma – 29113096

Young Professional 49A; Master of Business and Administration-ITB

The Importance of Strategic Corporate Social Responsibility (CSR) as One of Basis of Corporate Practice.
Business ethics are moral principles that guide the way a business behaves. The same principles that determine an individual‖s actions also apply to business. Acting in an ethical way involves distinguishing between ―right‖ and ―wrong‖ and then making the ―right‖ choice. It is relatively easy to identify unethical business practices. For example, companies should not use child labour. They should not unlawfully use copyrighted materials and processes. They should not engage in bribery. However, it is not always easy to create similar hard-and-fast definitions of good ethical practice. A company must make a competitive return for its shareholders and treat its employees fairly. A company also has wider responsibilities. It should minimise any harm to the environment and work in ways that do not damage the communities in which it operates. This is known as corporate social responsibility. In the second decade of the third millennium, there are four major factors which highlight the importance of business ethics: 1. Long-term growth: sustainability comes from an ethical long-term vision which takes into account all stakeholders. Smaller but sustainable profits long-term must be better than higher but riskier short-lived profits. 2. Cost and risk reduction: companies which recognise the importance of business ethics will need to spend less protecting themselves from internal and external behavioural risks, especially when supported by sound governance systems and independent research 3. Anti-capitalist sentiment: the financial crisis marked another blow for the credibility of capitalism, with resentment towards bank bailouts at the cost of fundamental rights such as education and healthcare. 4. Limited resources: the planet has finite resources but a growing population; without ethics, those resources are repleted for purely individual gain at huge cost both to current and future generations.

Strategic Corporate Social Responsibility (CSR)
Over the decades, the concept of corporate social responsibility (CSR) has continued to grow in importance and significance. It has been the subject of considerable debate, commentary, theory building and research. In spite of the ongoing deliberations as to what it means and what it embraces, it has developed and evolved in both academic as well as practitioner communities worldwide. The 1

Wenaldy Andarisma – 29113096

Young Professional 49A; Master of Business and Administration-ITB

idea that business enterprises have some responsibilities to society beyond that of making profits for the shareholders has been around for centuries. For all practical purposes, however, it is largely a post World War II phenomenon and actually did not surge in importance until the 1960s and beyond. Therefore, it is largely a product of the past half century. Today, one cannot pick up a newspaper, magazine or journal without encountering some discussion of the issue, some recent or innovative example of what business is thinking or doing about CSR, or some new conference that is being held. Specific journals, news magazines, books, dictionaries, encyclopedias, websites, discussion lists and blogs treat the concept on a regular basis. The business community has formed its own organizations specializing in the topic. Business for Social Responsibility (BSR), for example, is a business association founded in 1992 to provide corporations with expertise on the subject and an opportunity for business executives to advance the field and learn from one another. There has been an explosion of interest in CSR in the European Union (as the instance) and around the world. The term ‗corporate social responsibility‘ is still in popular use, even though competing, complementary and overlapping concepts such as corporate citizenship, business ethics, stakeholder management and sustainability are all ―eventually‖ to become the most accepted and widespread descriptor of the field. At the same time, the concept of corporate social performance (CSP) has become an established umbrella term which embraces both the descriptive and normative aspects of the field, as well as placing an emphasis on all that firms are achieving or accomplishing in the realm of social responsibility policies, practices and results. In the final analysis, however, all these concepts are related, in that they are integrated by key, underlying themes such as value, balance and accountability (Schwartz and Carroll 2008), and CSR remains a dominant, if not exclusive, term in the academic literature and in business practice.

Defining CSR for Business Purpose
Carroll‘s (1979, 1991) four-part definition of CSR identifies four categories of responsibilities: economic, legal, ethical and discretionary/philanthropic. These ‗responsibilities‘are the expectations placed on the corporation by corporate stakeholders and society as a whole. One of the major advantages of Carroll‘s definition is its expansion of the categories of CSR that McGuire referred to in 1963. McGuire (1963, p. 144) argued: ‗The idea of social responsibilities supposes that the corporation has not only economic and legal obligations, but also certain responsibilities to society which extend beyond these obligations.‘ By identifying and distinguishing the ethical and discretionary/philanthropic categories, Carroll explicitly spelled out what McGuire referred to as the responsibilities that extend beyond the economic and legal responsibilities. Carroll then made the notion of CSR more explicit when he contended that the

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Wenaldy Andarisma – 29113096

Young Professional 49A; Master of Business and Administration-ITB

economic and legal responsibilities are ‗required‘, the ethical responsibilities are ‗expected‘, and the discretionary/philanthropic responsibilities are ‗desired‘. By doing so, he made a distinction between the traditional and the new responsibilities of the corporation. The classical responsibilities of the corporation which are embodied in its economic and legal responsibilities reflect the old social contract between business and society. Alternatively, the new responsibilities of the corporation which are embodied in the ethical and discretionary/philanthropic responsibilities reflect the new, broader, social contract between business and society. Since what is debated in the subject of CSR are the nature and extent of corporate obligations that extend beyond the economic and legal responsibilities of the firm, it may be understood that the essence of CSR and what it really refers to are the ethical and philanthropic obligations of the corporation towards society. Kotler and Lee (2005) essentially see CSR in the same way. They define CSR as ‗a commitment to improve community well-being through discretionary business practices and contributions of corporate resources‘. The economic responsibility of business is ‗to produce goods and services that society desires and to sell them at a profit‘ (Carroll 1979, p. 500). By doing so, businesses fulfill their primary responsibility as economic units in society. The critical question is: To what extent should a business pursue profits? Carroll (1991, p. 41) observes that the profit principle was originally set in terms of ‗acceptable profits‘; however, the principle transformed to ‗profit maximization‘. The doctrine of profit maximization is endorsed by the classical economic view led by the late Milton Friedman (1962) where ‗there is one and only one social responsibility of business – to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud‘. Drucker (1954/2006) presents an alternative perspective to the classical economic view. He argues that profit performs three main functions. First, it measures the effectiveness of business activities; second, it provides a ‗risk premium‘ necessary for the corporation to stay in business; and third, it insures the future supply of capital. ‗A pro-fitability objective therefore measures not the maximum profits the business can produce, but the minimum it must produce‘ (Drucker 1954/2006, pp. 76–77). It is worth noting that Barnett (2007) provides an argument which seems to indicate that the principle of maximizing shareholder wealth is, in itself, not in the interest of shareholders. Barnett contends that excessive financial performance leads to decreasing the ability of the company to influence its stakeholders. Barnett (2007, p. 808) explains:
Doing too well can lead stakeholders to perceive that a firm is not doing enough good. Excessive CFP indicates that a firm is extracting more from society than it is returning and can suggest that profits have risen because the firm has exploited some of its stakeholders in order to favor shareholders and upper management. This can indicate untrustworthiness to stakeholders looking to establish or maintain relations with the firm.

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Wenaldy Andarisma – 29113096

Young Professional 49A; Master of Business and Administration-ITB

While tension remains between these two views of profit, the notion of an economic responsibility in terms of financial profit to stockholders is accepted and required by both views. One may even argue that maximizing shareholder wealth in the long run is an underlying principle of both views. The real difference may be that the classical economic view fails to appreciate the long-term negative effects of the application of the maximization principle in the short term. In contrast, the opposite view applies the maximization principle for long-term benefits, which entails that such principle may be suppressed in certain short-term considerations. The legal responsibilities of business refer to the positive and negative obligations put on businesses by the laws and regulations of the society where it operates. Little disagreement exists between the various views on CSR regarding what constitutes the legal responsibilities of business. All views accept the requirement of adherence to the laws and regulations of society. The difference really exists regarding the nature and scope of such an obligation. With respect to the nature of the legal obligations, on the one hand, some views contend that the legal responsibility of business constitutes the totality of the responsibility of business towards society. On the other hand, some argue that laws and regulations constitute but one category of the responsibility of business towards society. For example, Carroll (1991, p. 41) considers the laws and regulations as the ‗codified ethics‘ of society. They represent ‗partial fulfillment of the social contract between business and society‘. With respect to the scope of the legal responsibilities, some advocate its expansion to encompass more regulation. They claim that regulation is necessary for the fulfillment of CSR. For example, De Schutter (2008, p. 203) argues that the business case for CSR ‗rests on certain presuppositions about markets and the business environment, which cannot be simply assumed, but should be affirmatively created by a regulatory framework for CSR‘. Others oppose such claims and assert that engagement in CSR activities and management of stakeholder relations should continue to remain voluntary. For example, Phillips et al. (2003) reject the claim that stakeholder theory, which contends that firm performance is influenced by the firm‘s management of its relationships with its stakeholders, promotes expanding or changing laws and regulations. Stakeholder theory ‗does not require a change in the law to remain viable‘ (Phillips et al. 2003, p. 491). The two opposing camps continue to present their arguments to justify the need for the expansion or contraction of the legal requirements imposed on business. Advocates of regulation question the ability of the free market mechanism to support CSR activities. They contend that market failure and the business environment are not rewarding firms engaging in CSR activities. In contrast, opponents of regulation argue that the free market mechanism promotes the interest of individuals, and in turn society, by rewarding CSR activities that are actually favored by individuals. Corporate social responsibility activities that are not rewarded by the market are those activities that individuals

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Wenaldy Andarisma – 29113096

Young Professional 49A; Master of Business and Administration-ITB

do not value and are therefore unwilling to support. The merit of CSR activities, thus, should be determined by the free market mechanism.

A Review of Apple, Inc.’s CSR ( 2011-2013)
While the idiom of ―Big Corp, Evil Corp‖ doesn‘t make any sense in term of academic analysis, I literally interested on Apple‘s case regarding ―unforgivable‖ act in the way they treated their labors. Outsourcing in the manner of global corporation is a no-brainer in conducting business activites. In 2011, Apple was highlighted by the media because of their ―Foxconn scandal‖ . Problem arises when several of their workers conducted suicides in allegedly a ―stressful‖ work environment. Not to mention that Foxconn didn‘t control their labor‘s safety. Foxconn is the manufacturer of iPhones and iPads and employs over 900,000 workers, of whom 420,000 employees work at the Foxconn Shenzhen plant. This plant covers 15 factories, including dormitories, a hospital, a bank, a grocery store and restaurants. The workers live and work inside the complex. In 2006 the Chinese local press reported on the excessively long working hours and the discrimination of mainland Chinese workers by Taiwanese superiors. In May 2010 several media sources reported several cases of suicide at Foxconn.1 From 2009 to 2010 a total of 13 workers had committed suicide. The first worker, Sun Danyong, committed suicide after he had been interrogated on the loss of an iPhone 4 prototype that he had in his possession. When the former CEO Steve Jobs was asked about the suicides at Foxconn, he responded: ‗Foxconn is not a sweatshop.‘2 During an undercover investigation it was discovered that the reason for the multiple suicides was related to internal management.3 ‗The facilities of Foxconn are fine, but the management is poor,‘ revealed Zhu Guangbing, who organised the investigation. According to Audrey Tsui,4 a professor at the National University of Singapore Business School, Foxconn maintains a military-style management approach. The workers were not allowed to interact with each other. Workers who violated the rule were penalized with a fine or were held to be in contempt by the manager. The weekly working hours of workers were up to 70 hours, ten hours above the maximum hours set by Apple‘s Supplier Code. The Foxconn factory has good facilities. The workers have access to swimming pools and tennis courts. Foxconn organises activities such as chess clubs, mountain climbing or fishing expeditions. But with a 70-hour workweek, employees did not have any time to enjoy these facilities.

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http://www.telegraph.co.uk/finance/china-business/7773011/A-look-inside-the-Foxconn-suicide-factory.html (Accessed on September 2nd, 2013) 2 http://www.dailymail.co.uk/sciencetech/article-1283389/Apple-boss-Steve-Jobs-defends-China-Foxconnfactory-conditions-10-suicides.html (Accessed on September 2nd, 2013) 3 http://micgadget.com/16357/foxconn-worker-i-hope-to-become-a-boss/ (Accessed on September 2nd, 2013) 4 http://bschool.nus.edu/Departments/ManagementNOrganization/cv/AudreyTsui-2010.pdf (Accessed on September 2nd, 2013)

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Wenaldy Andarisma – 29113096

Young Professional 49A; Master of Business and Administration-ITB

However, interviews with several Foxconn workers by Dreamworks China revealed that not all the employees were dissatisfied. Some believed that the working conditions at smaller factories are worse. One of Foxconn‘s workers stated that employees at Foxconn thought the media had exaggerated the suicides regarding their connection to Foxconn and that possibly some suicides had a sentimental or romantic cause. In February 2011, the media reported the child labour issues had worsened at the suppliers for computers, iPods and iPhones.5 Apple‘s Supplier Responsibility Report 2011 revealed 91 underage workers at the suppliers. Concerning workers‘ health and safety conditions at the suppliers, in May 2010 two workers were killed and sixteen employees were injured during an explosion at Foxconn. An Apple spokesperson stated: ‗We are deeply saddened by the tragedy at Foxconn‘s plant in Chengdu, and our hearts go out to the victims and their families. We are working closely with Foxconn to understand what caused this terrible event‘. In the same month, The Guardian reported that workers from Wintek had been poisoned by n-hexane, a toxic chemical used to clean the touch screens of iPhones. The employees complained that the compensation Wintek offered for the health damage was not sufficient. The workers who did receive compensation were asked to resign from their jobs.6

Apple’s CSR Post-Foxconn’s “Shenanigan”
Apple makes sure that suppliers comply with the Supplier Code by conducting audits. The audits cover working and living conditions, health and safety but also environmental practices at the facilities. According to Apple‘s Supplier Responsibility Report 2010, Apple conducted 102 audits in 2009. In 2011 Apple conducted 229 audits, an increase of 80% compared to 2010. An audit is conducted by an Apple auditor and supported by local third-party auditors. In the Supplier Responsibility Report 2010, published in February 2011, Apple included a paragraph responding to the suicides at Foxconn. In the Supplier Responsibility Report 2011, Apple reports that during inspections Apple discovered ten facilities with underage labour violations. One of the facilities had a large number of underage workers. Because the management did not want to address the problem, Apple terminated businesses with this facility. Where underage labour has been discovered, suppliers are required to pay educational expenses, living stipends and lost wages for six months or until the worker reaches the age of sixteen. In November 2010, Apple set up a training programme to prevent the future hiring of underage workers. The human resources managers are trained in Chinese labour law. Training human resources managers, however, will not solve child labour issues. When the costs of labour, energy and
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http://www.telegraph.co.uk/technology/apple/8324867/Apples-child-labour-issues-worsen.htm (Accessed on September 2nd, 2013) 6 http://www.guardian.co.uk/world/2011/feb/22/chinese-workers-apple-nhexane-poisoning.html (Accessed on September 2nd, 2013)

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Wenaldy Andarisma – 29113096

Young Professional 49A; Master of Business and Administration-ITB

raw materials rise and there is a shortage of labour, factory owners are forced to cut costs or to find cheaper labour. Child labour can easily be hidden by providing fake wages and work schedule data. Also, it is difficult to prevent child labour when underage workers want to work to provide for their families. The Supplier Responsibility Report of 2012 states that suppliers are obliged to return underage workers to school and finance their education through Apple‘s Child Labour Remediation Program.7 Regarding abolishing underage labour, Tim Cook, the CEO of Apple, stated: ‗We would like to totally eliminate every case of underage employment. We have done that in all of our final assembly. As we go deeper into the supply chain, we found that age verification system isn‘t sophisticated enough. This is something we feel very strongly about and we want to eliminate totally‘.8 In the Supplier Responsibility Progress Report of 2011 Apple addressed the issue of the use of n-hexane. Apple obliged Wintek to stop using n-hexane and required Wintek to repair its ventilation system and to work with a consultant to improve its environmental health and safety systems.138 In order to take action it is important for companies to be transparent about their supply chain. In February 2012 Apple announced it would be the first technology company to join the Fair Labour Association (FLA) as a participating company.9

What I Got from All of These Publications
Apple‘s suppliers have often been involved in public scandals. In order to ensure that Apple‘s suppliers comply with the Supplier Code, the suppliers are subjected to onsite audits by Apple auditors, supported by local third-party auditors. In 2011 Apple carried out 229 audits, 80% more than in 2010. To abolish child labour Apple has set up a Child Labour Remediation Program. Apple has received criticism about not being transparent. But after the scandals, Apple has not only addressed the conflicts in its Supplier Responsibility Progress Reports but in January 2012 for the first time Apple released a list of 97% of its suppliers. Apple has also invited ABC News to Foxconn to look at the working and living conditions at the plant. On top of that, Apple has set a new standard in transparency; in February 2012 Apple announced it will be the first participating technology company to join the FLA. The Foxconn audit showed at least 50 violations, most of them violating China‘s labour law and Apple‘s Supplier Code of Conduct on excessive overtime. A review of Apple‘s Supplier Responsibility Report reveals that the company is taking action to stop unethical practices among is suppliers. These have included use of underage labor at 10 facilities, dangerous working conditions at two facilities, falsification of audit materials at four facilities, and bribery at one facility. It‘s obvious that these irresponsible actions need to be
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http://www.apple.com/supplierresponsibility/ (Accessed on September 2nd, 2013) http://www.reuters.com/article/2012/01/13/usapple-suppliers-idUSTRE80C1KQ20120113 (Accessed on September 2nd, 2013) 9 http://www.fairlabor.org/blog/entry/apple-joins-fla (Accessed on September 2nd, 2013)

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Wenaldy Andarisma – 29113096

Young Professional 49A; Master of Business and Administration-ITB

prevented. However, doing what‘s necessary in this area doesn‘t add up to CSR as it should be practiced at Apple. Looking at the main issues Apple has been struggling with in the last couple of years, I identified 5 main problems that cause Apple to fail time and again when it comes to CSR: 1. Lack of stakeholder engagement strategy – Apple simply doesn‘t believe it needs to engage stakeholders, not to mention having an engagement strategy. We can see it every time, from not sharing information with Greenpeace about why Greenpeace got it wrong about the power consumption of Apple‘s North Carolina data center to not responding at first to Chinese environmental groups investigating pollution issues in Apple‘s supply chain in China.
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Another

example is Apple‘s tendency to reply to questions from the media about working conditions issues in its supply chain with a generic reply, such as: ―Apple is committed to driving the highest standards of social responsibility throughout our supply base.― These examples show that Apple is very reluctant to engage with any stakeholder that has a critical point of view of the company. The thing is that in all of these cases Apple had to change course eventually, revealing to everyone the information it didn‘t want to share with Greenpeace in the first place, talking with the Chinese organizations and even providing more meaningful information to the media. If Apple will establish a strategic way to engage with stakeholders, just like Gap did successfully couple of years ago, it can save itself a lot of trouble.12 2. Lack of triple bottom line thinking – Apple hasn‘t really adopted the triple bottom line. For Apple it has usually been about maximizing its profits and addressing environmental and social issues as long as they didn‘t make a significant impact on Apple‘s income. Now, even when Apple claims to promote one of the other elements of the triple bottom line, like people for example, its practices show that it‘s still really about the profits. Take its supply chain – while Apple has a very progressive code of conduct, it also, as the New York Times reported, allows suppliers only the slimmest of profits, which often results in suppliers trying to cut corners, replacing expensive chemicals with less costly alternatives, or pushing their employees to work faster and longer. As Apple could see in the case of Foxconn, this approach can work for some time, but not for the long run. If Apple will start thinking about people and the planet as seriously as it thinks about profits, it might even find out that in the long run there‘s no contradiction between these elements.1314
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http://www.triplepundit.com/2012/04/greenpeace-report-data-centers-apple-valuable-lesson-stakeholderengagement/ (Accessed on September 2nd, 2013) 11 http://www.triplepundit.com/2011/10/apple-china-environment-stakeholder-engagment/ (Accessed on September 2nd, 2013) 12 http://www.triplepundit.com/2011/06/gap-became-poster-boy-strategic-stakeholder-engagement/ (Accessed on September 2nd, 2013) 13 http://www.apple.com/supplierresponsibility/accountability.html (Accessed on September 2nd, 2013)

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Wenaldy Andarisma – 29113096

Young Professional 49A; Master of Business and Administration-ITB

3. No CSR leadership or team – Unless you‘re a company with a CEO devoted to CSR or an established CSR culture, you can‘t really do CSR right without a dedicated CSR team. 15 As Andrew Winston put it: ―You need people to ride herd and drive the agenda — to do the cross-cutting analyses such as lifecycle assessments, to track and get a handle on the many diverse and complex issues, to present a unified front to employees and external stakeholders, to question business models and find new, heretical ways to operate and serve customers…the list goes on.‖16 4. Low level of transparency – While it is providing more information than many of its competitors (Amazon for example), Apple‘s transparency is still far from being satisfactory. The company does not release a sustainability report, does not reply to the CDP surveys and, until recently, it also didn‘t disclose the name of its suppliers or allow a third party to audit the working conditions in its supply chain. It‘s time for Apple to stop being so hush-hush and start being more open about the way it does business.1718 5. Dated approach – Apple still doesn‘t have a holistic approach when it comes to sustainability. You can easily see it on its website where there‘s a separate page for environment, dedicated mainly to its footprint and a separate page for supplier responsibility, which is focusing on Apple‘s supply chain. The division between social and environmental impacts is really out of date and even oil companies like Chevron now have a CSR page.19 All Apple has to do is to address its CSR approach just like an iPhone or iPad and remember to update it on regular basis.

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http://www.nytimes.com/2012/01/26/business/ieconomy-apples-ipad-and-the-human-costs-for-workers-inchina.html?pagewanted=all (Accessed on September 2nd, 2013) 15 http://www.triplepundit.com/2012/02/finally-green-business-movement-true-leader-paul-polman-ceounilever/ (Accessed on September 2nd, 2013) 16 http://www.andrewwinston.com/blog/2012/03/corporate_sustainability_effor_1.php (Accessed on September 2nd, 2013) 17 http://www.triplepundit.com/2010/01/apple-snubs-green-shareholders-refuses-sustainability-reporting/ (Accessed on September 2nd, 2013) 18 http://www.triplepundit.com/2012/01/apple-incs-supply/ (Accessed on September 2nd, 2013) 19 http://www.triplepundit.com/2012/05/chevrons-2011-csr-report-rosy-picture-company/ (Accessed on September 2nd, 2013)

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Wenaldy Andarisma – 29113096

Young Professional 49A; Master of Business and Administration-ITB

REFERENCES

Main References: Caroll, A.B. and Shabana, Kareem M. (2010). The Business Case for Corporate Social Responsibility: A Review of Concepts, Research and Practice. International Journal of Management Reviews. British Academy Management. Torres, C. A. C., Garcia-French, M., Hordijk, R., Nguyen, K., Olup, L. (2012). Four Case Studies on Corporate Social Responsibility: Do Conflicts Affect a Company‘s Corporate Social Responsibility Policy?. Utrecht Law Review, 8. Other Citation from Main References: Barnett, M.L. (2007). Stakeholder Influence Capacity And The Variability Of financial Returns To Corporate Social Responsibility. Academy of Management Review, 32. Carroll, A.B. (1979). A Three-Dimensional Conceptual Model of Corporate Social Performance. Academy of Management Review, 4. Carroll, A.B. (1991). The Pyramid Of Corporate Social Responsibility: Toward The Moral Management Of Organizational Stakeholders. Business Horizons, July–August. De Schutter, O. (2008). Corporate Social Responsibility European Style. European Law Journal, 14. Friedman, M. (1962). The Social Responsibility Of Business Is To Increase Its Profits. New York Times, September, 126. Kotler, P. and Lee, N. (2005). Corporate Social Responsibility: Doing the Most Good for Your Company and Your Cause. Hoboken, NJ: Wiley. McGuire, J. (1963). Business and Society. New York: McGraw-Hill. Phillips, R.R., Freeman, R.E. and Wicks, A.C. (2003). What Stakeholder Theory Is Not. Business Ethics Quarterly, 13. Schwartz, M. and Carroll, A.B. (2008). Integrating and unifying competing and complimentary frameworks: the search for a common core in the business and society field. Business and Society, 47. Supplement Sites: http://www.apple.com/supplierresponsibility/ http://www.apple.com/supplierresponsibility/reports.html 10