2.
Responsibility to prevent harm
Corporate Social Responsibility
• Responsibilities to the society it operates
• Economic Perspective
○ business exists to produce g&s demanded by
society and à business creates jobs & wealth
that benefit society further
○ The law has created corporations – limit the
liability of indiv for the risks
ECONOMIC MODEL OF CSR
• Profit – indication that the business is efficiently &
successfully producing g&s the society demands
• Denies that business has any social responsibilities
beyond economic & legal ends for w/c it is created
ETHICS AND SOCIAL RESPONSIBILITY
• Responsible
- reliable or trustworthy
- cause for an event or action
- liability/accountability for an event/action
creating an obli to make things right again
- Did Dengvaxia cause the death?
- Was Dengvaxia responsible for the death?
• Responsibility as Accountability: Heart of CSR
- CSR
o actions a business be held accountable
o to be concerned w/ society’s interests that
should restrict/bind bus. behavior
o What a business should or ought to do for the
sake of society, even if it comes w/ an
economic cost
- Was Sanofi Pasteur at fault- should it be held
legally liable?
- Should Sanofi Pasteur bear responsibility for
the death of the children?
Utilitarian
Economic Model
of CSR
Neoclassical
Economics
Primary responsibility of
business managers:
1. Pursue maximum profit
2. Allocate resources to most efficient uses
3. Consumers will be willing to pay
4. Profit – measure of optimal allocation of resources
5. Pursuit of product will continuously work for optimal
satisfaction of consumer demand: Optimal social
good (Utilitarian interpretation)
BUSINESS ETHICS IS NORMATIVE
• What is the proper role of business mgmt in making
decisions?
• What is the proper role of business in society?
• Do business managers have an overriding ethical
responsibility to serve the interests of stockholders
before acting for society’s interests?
THREE TYPES OF RESPONSIBILITIES
1. Responsibility not to cause harm to others
3. Responsibility to do good (volunteer/charitable
work)
THE CLASSICAL MODEL OF CSR
• Rooted in free market economic theory
• Most influential theory of CSR in the last century
• Milton Friedman
- Resources à Increase Profit à Stay w/in
rules of the game of free and open market
EVALUATING STRATEGY OF WALMART FROM CSR
STANDPOINT
• everyday low prices
1. Aggressive policies to keep labor costs down
2. Use of purchasing power to bargain forcefully
3. Suppliers outsource production to China
4. Outsourced janitorial services
5. Entered new markets defeating competitors
6. Bargained w/ local municipalities to attain
favorable tax & financial incentives
• w/o deception and fraud, Walmart’s ethical
objectives... – Extraordinary ROI & Low Prices
a. More consumer and society benefits
b. Hire more workers
c. Attract more investors
d. Expand business
• Utilitarian Principle: act to maximize overall good
• Milton Friedman
- Right of Private Property: Business a Priv
Property
1. corp exec is an employee
2. directly responsible to the employers
3. to make money but conform w/ law &
ethical customs
4. agent of the owners
THE CLASSICAL MODEL OF CORPORATE SOCIAL
RESPONSIBILITY
• Right of Private Property: Business As Private
Property
• pursuing any social objective > max. of profit is
spending someone else’s money for your own
purposes à theft
• Business mgmt must pursue max. profits
• gov’t must have a laissez-faire approach
• Freedom from gov’t reg. & control allows the mkt to
function most efficiently
ASSESSMENT OF ECONOMIC MODEL:
CHALLENGES DIRECTED AT UTILITARIAN POINT OF
VIEW
• Utilitarian ethics – means & ends, of acts and
consequences
• free market economy, focus of manager:
o contribute to production of beneficial
consequences (adequacy of free markets for
maximizing consumer demands)
• appropriateness of consequences as legit ethical
goals
 • Market Failure – when pursuit of profit will not
result in increase in consumer satisfaction
• General Cases of Market Failure:
a. Externalities à Pollution, Groundwater
contamination, Resource depletion, Soil
erosion, Nuclear water disposal à People
downwind, Neighbors, Future generations
b. Public Good à Clean air, Groundwater,
Ocean fisheries, Scenic views, Safe streets à from imperative to balance SH interests
No guarantee that mkt result in optimal
satisfaction of public interest
c. Indiv pursuit of self-interest à Indiv rationality
à Good be achieved w/ cooperation > compet
THE MORAL MINIMUM
• Normal Bowie: pursuit of profit is constrained by an
obli 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
• prevent harm or do some good < duty to SHolders
• distinguishes between 3 imperatives is a challenge
• For every case in w/c SH interests appears to
conflict w/ interests of employees, consumers,
suppliers, or society, mgmt must analyze the
situation to determine ethical responsibility
• Compliance w/ law is insufficient for an ethically
responsible business
STOCKHOLDER MODEL OF CORPORATE SOCIAL
RESPONSIBILITY
Economic
Model & SH – primary beneficiaries of business
Moral decision
Minimum
SH & other stakeholders’ ethical
claims over managerial decisions.
Stakehold
er Theory Views SH as investors or financiers >
owners.
THE STAKEHOLDER THEORY
• every business affects a wide variety of people,
benefiting some and imposing costs on others
• rejects premise that the beneficiaries of business
decisions should be investors
• William Evans & R. Edward Freeman: Narrow and
Broad Stakeholder Theory
○ Narrowly: a SH - “any grp vital to the survival
and success of the corpo”
○ Broadly: a SH - “any grp or indiv who can affect
or be affected by the corpo”
• true a century ago mgmt had an overriding obli to
Stock Holders, the law now recognizes a wide range
of managerial obli to Stake Holders such as
consumers, employees, competitors, the
environment, and the disabled
• What is fiduciary duty?
• requires mgmt to balance ethical interest of all
affected parties
• requires that mgmt consider the consequences of
its decision for the well-being of all affected groups
• Challenges to Stakeholder theory:
○ probs w/ identifying SH and their interests
○ probs deciding what course of action follows
• offer little practical advice to managers
STRATEGIC MODEL OF CSR: SUSTAINABILITY
• Social responsibility – mission & strategic vision
• Company’s mission – serve social ends (at the very
heart of the firm’s mission)
• Firm’s Financial Goals ≤ Envi Consideration
(ecological, natural environmental, social bottom
line)
Corporate Culture, Governance and
Ethical Leadership
CORPORATE CULTURE?
• Every org has a culture.
• culture – share pattern of beliefs, expectations, &
meanings that guide the behavior or its members
• unspoken yet influential standards & expectations
(dress codes, working hours, & values of firms)
• No culture is static (no movement)
• change, but modifying or having any impact on
culture is like moving an iceberg – one person
cannot alter its course, but strong leaders can have
a significant impact on a culture.
• firm’s sustaining value
• Can offer direction and stability in challenging times,
but can also constrain a firm to the common ways of
managing issues.
• stability – a benefit & a barrier
• sets the norms and expectations that will determine
which decisions get made
• great power to shape the indiv who work w/in them
CULTURE AND ETHICS
• where law is incomplete guide for ethical decisions,
the corporate culture the determining factor.
• ethical culture – employees are empowered &
expected to act in ethically responsible ways even
when law does not require
• ex. of cultures encourage & discourage is the two
org approaches to relief efforts on Hurricane Katrina
in September 2005
○ bureaucratic hierarchical procedures, Federal
Emergency Management (FEMA) was unable
 to respond in a timely manner as it did not fit
their usual rules.
○ FEMA Director Michael Brown was eventually
removed & replaced with Coast Guard admiral.
○ U.S. Coast Guard is less bureaucratic. Their
unofficial motto is “rescue first, and get
permission later.” The Coast Guard empowers
front-line indiv to solve problems w/o waiting for
authorization.
○ While FEMA & the Coast Guard are similar
orgs with similar missions, rules, and legal
regulations, their cultures are very different, &
respective decisions reflect these cultures.
• Besides abstract considerations, an ethical culture
can also have a direct practical impact on the
bottom line.
• Responsibility for creating & sustaining ethical
corporate cultures lies w/ business leaders.
• The person that you become, in your attitudes,
values, expectations, mind-set, and habits, will be
significantly determined by the org you work.
ETHICAL LEADERSHIP & CORPORATE CULTURE
• Ethical Leadership – perceived as people-oriented
• Even traditional leadership duties are perceived as
done w/in context of an ethics agenda
• Ethical traits & behavior must be socially visible &
understood (“walking the talk”) to have influence
• Corp leaders must advocate & model ethics
• Leadership sets the tone not only via personal
behavior, but also via allocating corporate
resources to support and promote ethical behavior.
EFFECTIVE LEADERSHIP & ETHICAL LEADERSHIP
• good or effective not necessarily an ethical leader
• Ken Lay & Jeffrey Skilling of Enron were good and
effective and were also unethical leaders.
• 1 key difference – motivators used to achieve goals.
• Threats, intimidation, harassment, and coercion can
be used effectively, but modeling, persuasion, and
use of one’s role are ethical & effective.
• An ethical method of leading, while central, is not
sufficient to establishing ethical leadership.
• other element involves the goal or end toward which
the leader leads.
• An exec who makes a business productive,
efficient, profitable, respects & empowers
subordinates, may seem to be effective and ethical.
• But what if business has unethical products – i.e.,
child porn, pollute envi, or sell weapons terrorists?
• Socially responsible goals – necessary for a leader
to be fully ethical.
BUILDING A VALUES-BASED CORPORATE CULTURE
1. Mission Statement & Code of Conduct
2. Clear Vision Statement
3. Process how the cultural shift will occur
4. Implement and follow through
Mission Statement (Johnson & Johnson)
• We will delight our consumers, treating as if they are
our only consumer, providing w/ a response evident
of our interest and that leaves them w/ clear
understanding that they are important to us.
Code (Johnson & Johnson)
• We believe acting ethically and responsibly is not
only the right thing to do, but also the right thing to
do for our business. J&J Code of Business Conduct
ensures how we do business to a high standard, to
fulfill our obli to the many stakeholders we serve.
Vision (Johnson & Johnson)
• Our vision at Johnson & Johnson, is for every
person to use their unique experiences and
backgrounds, together to spark solutions that create
a better, healthier world. Our mission is to make
diversity & inclusion our way of doing business.
BUILDING A VALUES-BASED CORPORATE CULTURE
• Critical to the success of any cultural shift are the ff:
1. Integrating an ethical culture throughout the firm
2. Providing means for enforcement
§ includes allowing employees to come w/ qs,
concerns, & info about unethical behavior.
• A key element of integration is communication. W/o
communication, there is no clarity of purpose,
priorities, or process.
• Ethics & Policy Integration Centre: claims
communication patterns describe the company >
org charts
• Reporting ethically suspect behavior is difficult.
○ “Whistleblowing” can expose & end unethical.
○ disloyal, harm the business & the whistleblower
• reporting to external groups can be so harmful,
internal reporting mechanisms are preferable.
• Internal mechanisms for reporting wrongdoing,
while preferable, must:
○ Be effective, Allow anonymity, Protect the
rights of the accused, Allow employees to
report wrongdoing, Create procedures for
follow-up and enforcement
• Internal mechanisms for reporting wrongdoing
which have been created by many firms:
1. Responsibilities of ethics officers
2. Responsibilities of compliance officers
3. Ethics ombudsmen
4. Ethics hotlines