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Chapter 5

 Corporate social responsibility (CSR):


- It refers to the responsibilities that businesses have to the society they operate in
- Economic perspective: business exist to produce goods and services and by producing goods
and services they create jobs and wealth that will benefit the society.
- Corporations: limits the liability of the individuals for the risks involved in these activities.
 Economic model of CSR
- Business’s sole duty is to fulfill the economic functions businesses were designed to serve.
- So, the social responsibility of business managers is simply to pursue profit within the law.
- Profit is a direct measure of how well a business firm is meeting society’s expectations. Profit
is a direct measure because it is an indication that the business is efficiently and successfully
producing the goods and services that the society demands.
- Economic model denies that business has any social responsibility beyond economic and
legal ends.
- Utilitarian view: when business pursue profits, managers will allocate the resources in the
most efficient ways then customers who most value these resources will pay for it no matter
how much they cost. So, profits from these sales indicates how efficient businesses are
allocating resources.
 Economic model = enlightened self-interest
- CSR-related activities can improve profitability by enhancing a company’s standing among its
stakeholders, including consumers and employees. So, you can provide the society with good
things as long as it benefits your business.
- With focus on reputation, social responsibility becomes merely social marketing.
- Companies are far more likely to survive under an unethical person with a good reputation
than under an ethical person with a reputation for injustice.
 Ethics and social responsibility
- There are three meaning of responsibility:
1- Reliable and trustworthy
2- Someone or something is the cause of this action
3- Someone is held accountable or liable for this action, so it forces this person to do things
right, this is the heart of CSR
- CSR:
 Actions for which a business can be held accountable.
 To be concerned with society’s interests that should restrict or bind business’s
behavior.
 What a business should or ought to do for the sake of society, even if this comes
with an economic cost.
- There are three levels of responsibility (from more to less demanding):
1- Responsibility not to cause harm to others. Even if it is not stated in law. However, if the
business could have prevented this harm, then law and ethics say that the business is
held accountable. Moreover, if a product is said to be harmful, then the business is
prohibited to market this product, and the business will be held liable for this harm.
2- To prevent harm even in those cases where one is not the cause. Prevent harm from
occurring. For example, when Merck produced the Mectizan drug that prevents
blindness in tropical nations. So, Merck is not responsible for this blindness, but they are
preventing it as part of social responsibility.
3- To do good (Volunteer and charitable work) and make the society a better place. Some
argue that the responsibility to do any donation or charity work is not an obligation nor
a duty. However, others argue that businesses have an obligation to support good causes
and to do good.
 Philanthropic model of CSR
- Business have no strict obligation to contribute to social causes, but it would be good if they
do so. Just like how individuals don’t have an obligation to do volunteering work, business
don’t have to contribute to social causes.
- However, businesses should be encouraged to do charitable work that contributes to the
society, beyond legal and economic restrictions. This approach is common in small, locally
owned businesses where the owners highly contribute to the small community they are
operating in.
- Some businesses do charitable work for the following reasons:
 It brings the firm good public relations.
 It provides a helpful tax deduction.
 It builds good-will and/or a good reputation within the community.
- In few cases, firms contribute to charity anonymously, corporate support for the social
causes is not done for potential business benefits, but instead because the business
manager or owner decides that it is simply a good and right thing to do.
- From the perspective of the narrow view of CSR (economic), only philanthropy done for
reputational reasons and financial ends (tax reduction) is ethically responsible.
- However, from the perspective of the philanthropic model, philanthropy done for financial
reasons is not fully ethical and not truly an act of social responsibility.
 Social web model of CSR
- It views business as a citizen of the society in which it operates and, like all members of a
society, business must conform to the normal ethical duties and obligations that we all face.
So basically, they have an obligation to do go to the society they are operating in since they
are citizens of this society.
- beyond the economic model’s duty to obey the law, business has an equally important
ethical duty to respect:
 human rights. Respecting human rights is called “moral minimum”. Just like how it is
good for businesses to prevent harm and to do good, they also must respect heir
duty to their stakeholders. However, their duty for their stockholder owners
overrides the philanthropic views of preventing harm and doing good.
 Employees and their rights. Such as the right to be in a healthy and safe
environment, right to privacy, and the right to due process.
 Consumers. Such as, providing customers or consumers with truthful products and
ads, even if it is not specified by law.
- The most important example in the social web model of CSR is the STAKEHOLDER THEORY:
 Starts off with recognizing that every business decision affects a wide variety of
people, benefiting some and imposing costs on others. Therefore, every decision
involves benefits to most stakeholders, but at the cost of some.
 The economic model argues that business models should be managed for the sole
benefit of the stockholders. However, the stakeholder theory argues on factual,
legal, economic, and ethical grounds that this is a false understanding of business.
 Stakeholder: any group or individual who can affect or be affected by the
corporation and the decisions of the corporations.
 The law now recognizes a wide range of managerial obligations regarding the
stakeholders including customers, employees, competitors, the environment, and
the disabled. Therefore, as a matter of law, business must look and respect their
stakeholders’ wants, not only the stockholders.
 There is a wide variety of market failures recognized by economists even if these
businesses pursued profits. There are market failures because business fail to
notice and acknowledge their stakeholders, which make up a major part of the
operation of their business.
 Stakeholder theory agrees with the utilitarianism requirements which state that we
have to consider the consequences of this decision on the well-being of the all the
affected groups.
 Stakeholder theory states that we have to treat people as ends rather than as
means to reach or attain or ends.
 Integrative model of CSR
- Non-profit organizations: Pursue social ends as the very core of their mission.
- So, we make the social causes and good causes the heart of the business model of the
organization.
- However, there are some for-profit organizations that make social causes the heart of the
business. These for-profit organizations are called “social entrepreneurship”.
- Even advocates of the narrow economic model of CSR agree that these social goals should
be part of and integrated in every business model.
- Social entrepreneurs demonstrate that profit is not incompatible with doing good, and
therefore one can do good profitably. So, you can do good and still get good profit
- Sustainability, when firms make environmental sustainability as the central to their mission
- The implications of sustainability in the Integrative Model of CSR:
 Sustainability holds that a firm’s financial goals must be balanced against, and
perhaps even over-ridden by, environmental considerations.
 Defenders of sustainability point out that all economic activity exists within a
biosphere that supports all life. There are fundamental human needs such as water,
clean air, nutritious foods, etc. and these needs are used in business activities. So,
these activities threaten the presence of those fundamental needs.
 We don’t only judge businesses based on their profits, but we judge them also
based on the ecological and social bottom lines. So, we have to see if the businesses
are using and allocating their resources in sustainable way, without creating wastes.