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CHAPTER THREE: CORPORATE SOCIAL RESPONSIBILITY

AN INTRODUCTION TO BUSINESS ETHICS


Copyright 2014 by McGraw-Hill Education. All rights reserved.

Corporate Responsibility
S1
PRASETIYA MULYA BUSINESS SCHOOL
26 March 2014

Copyright 2014 by McGraw-Hill Education. All rights reserved.

AGENDA
Corporate Responsibility Pyramid
Corporate Social Responsibility Perspectives
CSR Initiatives

Copyright 2014 by McGraw-Hill Education. All rights reserved.

CORPORATE RESPONSIBILITY PYRAMID


PHILANTROPIC RESPONSIBILITIES
Active involve in activities that promote human welfare

ETHICAL RESPONSIBILITIES
Fulfill legal and ethical obligations

LEGAL RESPONSIBILITIES
Carry out its work in accordance with the law and
government regulation

ECONOMIC RESPONSIBILITIES
(making acceptable profit)
Trevino, p.29

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EVOLUTION OF BUSINESS SOCIAL INVOLVEMENT


Social Obligation - obligation to fulfill economic and legal law
Avoid do any harm to other people
Conform to the law
Social Responsiveness:
Capacity of an organization to respond to social issues
(tsunami Aceh)
Social Responsibility:
It is beyond legal and economic standard, in order to attain
long term organization goals
To cultivate the wisdom and ability to make the world better
(Thomas Mulligan)
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Social Responsibility Perspective


the basic mission of business [is] thus to produce
goods and services at a profit, and in doing this,
business [is] making its maximum contribution to
society and, in fact, being socially responsible Milton Friedman
although profits are required for business just like
eating is required for living, profit is not the
purpose of business any more than eating is the
purpose of life Theodore Levitt

when a business also cares about the well-being


of stakeholders, it earns trust and cooperation that
ultimately reduce costs and increase productivity
Norman Bowie
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THE CLASSICAL MODEL OF CORPORATE SOCIAL


RESPONSIBILITY
The right of private property: business is
understood as private property
Pursuing any social objective other than the
maximization of profit is spending someone
elses money for your own purposes. This is
ethically equivalent to theft.
Business management must pursue maximum
profits under this model

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THE CLASSICAL MODEL OF CORPORATE SOCIAL


RESPONSIBILITY
Government must have a laissez-faire approach
to business
Freedom from government regulation and
control, allows the market to function most
efficiently

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ASSESSMENT OF CLASSICAL MODEL

Are free markets adequate as means to the ends


of maximally satisfying consumer demand?

Are the ends pursued by free markets


appropriate as legitimate ethical goals?

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ASSESSMENT OF CLASSICAL MODEL

Market failures: the pursuit of profit will not


result in a net increase in consumer satisfaction
Pollution
Resource

depletion
Ground contamination
No pricing mechanism exists for these public goods,
therefore no means exists to ensure that these goods
get allocated to those who most value them

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ASSESSMENT OF CLASSICAL MODEL

Market failures: the pursuit of profit will not


result in a net increase in consumer satisfaction
Self-interested

behavior results in worse outcomes


than if behavior had been coordinated (Prisoners
dilemma)
Food

additives
Vehicles that use too much gasoline and pollute the air
Exposure to workplace chemicals

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ASSESSMENT OF CLASSICAL MODEL

The market is so complex that it is extremely unlikely


that a single and simple directive such as maximize
profits will produce the greater overall good in all cases
and in every situation

Questions about public and social goods remain


unasked from within market transactions: what is good
for individuals is not necessarily good for society

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ASSESSMENT OF CLASSICAL MODEL

Utilitarianism is a pragmatic theory


Because we can never know the future in a complex and
changing world, Utilitarians remain ready to revise their
principles in light of changing consequences
Utilitarian-market principles should be: Maximize profit
when doing so produces the greatest overall good for
the greatest number of people

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ASSESSMENT OF CLASSICAL MODEL


Economic growth measures only the quantity of
what consumers spend, it does not assess the
quality of what they are purchasing with that
spending
Efficient markets provide no substantive ethical
basis for evaluating the ethical content or quality
of consumer choice
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ASSESSMENT OF CLASSICAL MODEL

Milton Friedman recognized limits to the pursuit


of profits
Stay

within the rules of the game


Conform to the basic rules of society
These restrictions are minimal.

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THE PRIVATE PROPERTY DEFENSE

Do the rights of private owners supersede the


consequences of the market?
Property

rights are not absolute.


Ones right to use property is constrained by the
rights of others.
The property rights of stockholder: limited legal
liability
Understood in the proper context: distinction
between investors and owners

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THE MORAL MINIMUM

Normal Bowie: the pursuit of profit is constrained by an


obligation to obey a moral minimum
This framework distinguishes between
Ethical imperatives to cause no harm
Ethical imperatives to prevent harm
Ethical imperatives to do good
While it is ethically good for managers to prevent harm or to do
some good, their duty to stockholders overrides these
concerns

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THE MORAL MINIMUM

Distinguishing between these three imperatives is a


major challenge

For every case in which stockholder interests appears to


conflict with the interests of employees, consumers,
suppliers or society, business management must
carefully analyze the situation to determine ethical
responsibility

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THE MORAL MINIMUM

Compliance with the law is insufficient for an


ethically responsible business

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THE STAKEHOLDER THEORY


Every business affects a wide variety of people
- benefiting some and imposing costs on others

The Stakeholder theory rejects the premise that


the primary beneficiaries of business decisions
should be investors

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THE STAKEHOLDER THEORY

William Evans and R. Edward Freeman: Narrow


and Broad Stakeholder theory
Narrowly:

A stakeholder includes any group who are


vital to the survival and success of the corporation
Broadly: A stakeholder is any group or individual
who can affect or be affected by the corporation?

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THE STAKEHOLDER THEORY


While it was true a century ago that
management had an overriding obligation to
stockholders, the law now recognizes a wide
range of managerial obligations to stakeholders
such as consumers, employees, competitors, the
environment, and the disabled
What is fiduciary duty?

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THE STAKEHOLDER THEORY

Stakeholder theory requires management to


balance the ethical interests of all affected
parties

Stakeholder theory requires that management


consider the consequences of its decisions for
the well-being of all affected groups

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CSR PHILOSOPHY

Social Expectation

Business Expectation

Achieving Balance
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THE STAKEHOLDER THEORY

Challenges to Stakeholder theory:


Problems

with identifying stakeholders and their

interests
Problems deciding what course of action follows
from the imperative to balance stakeholder interests

Stakeholder theory seems to offer little practical


advice to managers

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The hierarchy of the stakeholders of a


corporation might be viewed :
customers
Job security
Job satisfaction
Acceptable working conditions
Fair wages and salaries

Customers satisfaction
Good products & services
Mutually beneficial relationship

employees

suppliers, creditors, distributors


Business: good citizen,
Honoring the law,
Paying taxes,
Preserving the environment

communities

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Treat them
appropriately

THE SUSTAINABILITY VERSION OF CSR


The success of a business not only judged by the
financial bottom line, but also against the ecological
and social bottom lines of sustainability.
The sustainability version of CSR argues that the
long-term financial well being of every firm is directly
tied to question of how that firm both affects and is
affected by the natural environment.

Copyright 2014 by McGraw-Hill Education. All rights reserved.

Guidance on Social Responsibility ISO


26000 WD 4.2
The Environment
Labour
Practices

Fair Operating
Practices

Consumers
issues
Organizational
Governance

Community involve.
& development

Social
Responsibility

Human Rights

Copyright 2014 by McGraw-Hill Education. All rights reserved.

ACT NO. 40 OF 2007


Article 7 4:
1. Companies doing business in the field and/or in relation to natural resources
must put into practice Environmental and Social responsibility.
2. The Environmental and Social Responsibility contemplated in paragraph (1)
constitutes an obligation of the Company which shall be budgeted for and
calculated as a cost of the company performance of which shall be due to
attention to decency & fairness
3. Companies which do not put their obligation into practice as contemplated
in paragraph 1) Shall be liable to sanctions in accordance with the
provisions of legislative regulations.
4. Further provision regarding Environmental and Social Responsibilities shall
be stipulated by Government Regulation.
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Social Issues
Social issues:
Good corporate Governance

Supplier:
Fair competition
Bribery
Collusion

Environmental:
Global warming
Pollution
Lack of energy
Environmental conservation
Hazardous waste
Ecosystem
Sustainable resources use

Customer:
Customer protection
Product design
Customer complaint handling
Mechanism for product recall
Education & Awareness

Employees:
Child labor
Discrimination
People development
Social life
Health & safety at work
Disable person
Labor union

Community:
Unemployment
Poverty
Contribution to economic empowerment
Community involvement

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Six Option Corporate Social Initiatives

No

Initiatives

Description

Cause promotion

Supporting social cause through promotional


sponsorship.

Cause related marketing

Making a contribution or donating percentage of


revenues to specific cause based on product sales

Corporate social marketing

Supporting behavior change campaigns

Corporate philanthropy

Making direct contributions to charity or cause

Community Volunteering

Providing volunteer services in the community

Socially Responsible
Business Practices

Adopting and conducting discretionary business


practices and investment that support social causes.

Kotler and Lee, 2005


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CONCLUSION

Corporate Social Responsibility Models lie across a


continuum
Moderation occurs as the range of constraints increases
upon the pursuit of profit
These theories are variations on the balancing of
utilitarian and deontological ethics
Whose interests should reign supreme?

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