Curtin Graduate School of Business

FACULTY OF BUSINESS AND LAW

MGMT3006 – Business Ethics

MODULE 4 –
Corporate Social Responsibility

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Corporate Social Responsibility
 What is a corporation?

A corporation is an entity
that can endure beyond The entity can own Limited liability means
the natural lives of its property and borrow that the members are liable
members and that can funds for ventures of for the debts of the
sue and be sued as an limited liability. corporation only to the
entity. extent of their investments.
 What is
corporate Governance?

Corporate governance refers to the system

of rules, practices and processes by which a
corporation or company is directed,
administered and controlled.
 CSR
• Corporate Social Responsibility is a claim that corporations also
have moral and social responsibilities as well as financial ones.

• For an expanded set of expectations for a business (i.e. beyond

financial and economic obligations) that incorporate the social and
environmental impact of the business.

• In this section we look at two main views:

– The narrow view, which rejects the claim for businesses taking on these
expanded responsibilities
– The broad view, which argues that businesses should take on these
expanded responsibilities
Increasingly, even governance
reflects the broad view

Image sources:
1 and 2: https://www.governancemasters.com.au/what-corporate-governance
3: https://www.governanceinstitute.com.au/resources/what-is-governance/
 There are many available frameworks for
CSR, but they are largely voluntary
• Central to the Principles for Responsible Management
Education (PRME) model, to which Curtin University is
an advanced signatory.

“What is PRME?
The Principles for Responsible Management Education
(PRME) is a United Nations-supported initiative founded
in 2007 as a platform to raise the profile of sustainability
in schools around the world, and to equip today's
business students with the understanding and ability to
deliver change tomorrow.”

http://www.unprme.org/about-prme/index.php
Some moving towards the UN Sustainable Development Goals, which are a “ shared
blueprint for peace and prosperity for people and the planet, now and into the
future”

“At its heart are the 17 Sustainable Development Goals (SDGs), which are an urgent
call for action by all countries - developed and developing - in a global partnership.
They recognize that ending poverty and other deprivations must go hand-in-hand
with strategies that improve health and education, reduce inequality, and spur
economic growth – all while tackling climate change and working to preserve our
oceans and forests.”
https://sustainabledevelopment.un.org/?menu=1300
 A well-known framework: Carroll’s Pyramid of CSR

Carroll’s Pyramid
of CSR
(Shaw et al, adapted from Carroll 1991)

… and possibly also here,

making positive contributions
to the lives of the community.

Broader views say business

also has responsibilities in this
ethical zone …

Narrow view of Milton

Friedman and others says
responsibility of business
stops here.
 Other names for CSR
– Sustainability
– Triple bottom line
– Stakeholder theory

• Common idea: commitments to the social or the ethical,

beyond the traditional financial objectives.
 Two Predominant Views on
CSR
• Narrow View:
– Business has only an obligation to pursue profit (often
but not always framed as a legal duty to owners /
shareholders)

• Broad View:
– Business has responsibilities beyond the obligation to
pursue profit
– Sometimes but not always framed as an ethical
obligation
 The Role of Shareholders
On the narrow view:
• Corporations are and should
be run only for the benefit of
their shareholders.
• Shareholders select
corporate managers to act
as their agents and advance
their financial interests.
• Management has a fiduciary
duty to its shareholders.
On the broad view:
• The duty to make a profit
does not outweigh a
company’s other
responsibilities.
• The agency relationship
creates an obligation, but
that obligation is not
absolute.
The Narrow View
 The Narrow View
• Most Famous
Proponent of the “"there is one and only
one social responsibility
narrow view was of business--to use its
Milton Friedman 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.“”
Milton Friedman, The Social Responsibility of Business is to
Increase its Profits, The New York Times Magazine,
September 13 1970, p.6
Debating corporate responsibility

Arguments for
the narrow view:

The ‘Corporations
‘Let ‘Business ‘Corporations
‘invisible will impose
government can’t handle lack the
hand’ (i.e. their values
do it.’ it.’ expertise.’
Adam Smith) on us.’
 The invisible hand again

The ‘Invisible Hand’ argument holds that:

• Corporations should not be held
morally responsible for non-economic
matters.
• Because to do so would be to distort the
economic mission of business.
• It would undermine the foundations of the
free-enterprise system.
The ‘let government do it’ argument

Corporations are profit-

oriented, and will profit
themselves while
impoverishing society.
Only a strong system of
government can, and should,
bring corporations under
control.
Criticisms of this approach
It is a blueprint for an intrusive government.

Many questionable activities will be overlooked.

Government can only prescribe behaviour for broad

issues; it cannot anticipate specific moral challenges.

Is government a creditable custodian?

 Also
• Even proponents of the narrow view such as Friedman and Smith
acknowledge that some constraints and ethics of the market are
necessary for an efficient and well functioning market economy.

• E.g. restraint on executive bonuses (Friedman) and some

transparency and honesty (Smith).
 The ‘corporations
lack the expertise’ argument
Corporate executives lack the moral and
social expertise to make anything other than
economic decisions.

To assign them non-economic

responsibilities would be to place social
welfare in the hands of inept custodians.

Yet sometimes it is only business that has

the expertise, talent and resources to tackle
problems.
The Broad View
 Origins of the Broad View
R. Edward Freeman
• Philosopher and professor
“A stakeholder in an organization
of business administration is (by definition) any group or
at the Darden School of individual who can affect or is
the University of Virginia,
• Most famous for
affected by the achievement of
‘stakeholder theory’ the organization's objectives.”
A stakeholder approach to strategic management,
1984, p. 46
The broad view:
Social purpose

Corporations are a human creation

invented to serve human needs.

Business has other obligations in

addition to the pursuit of profit.

Corporations have an obligation to consider

the interests of all groups upon which they have
an impact.

The social contract: business has a duty to consider

its impact on society.
 STAKEHOLDER APPROACH
‘Stakeholder’ means anyone who is affected by or can affect a
business. (Edward Freeman)
The stakeholder approach attempts to consider the interests of all upon
whom the business has an impact.
 Stakeholder approach (CONT.)

Primary impact: Secondary relationship:

employees government

local
legal bodies
community

the
suppliers
environment.

customers

shareholders.
Stakeholder Categorisation: The
Salience Model

• Power
• Legitimacy
• Urgency

Image: Cengage Learning 2015, adapted from Mitchell

et al. ‘Toward a Theory of Stakeholder Identification and
Salience: Defining the Principle of Who and What Really
Counts’, The Academy of Management Review, Vol. 22,
No. 4 (Oct., 1997), pp. 853-886
Choosing Between the Views
 How can we decide?
• The input of individuals shaping the decisions of a
corporation?

• Can we view corporations as morally responsible

because of the moral inputs from individuals?
What are the outcomes either way?

• If a corporation cannot ‘have a conscience’ does that

mean it has no moral responsibility?
• Or does it mean that the individuals that make it up? Its
directors? Its CEO? Take on all of the moral
responsibility for its actions?

• Or does it mean laws and expectations need be crafted

with this in mind?
• Legal penalties versus moral penalties?
 Is the split that distinct?
• Many commentators argue that the split between the narrow and
broad views is in practice far less distinct than it might seem.

• Partly because there are very few advocates of the extreme end of
either the narrow or the broad views (almost all corporate leaders
take into account some aspects of social responsibility and almost
all of them also take into account some trade offs against
profitability).

• Partly because the interests of stakeholders and share holders often

coincide – sometimes true coincidence, sometimes because of
public expectations and sensitivity of share price.

• (e.g. Donaldson, Thomas, Defining the value of doing good business’: Financial Times; London (UK) [London
(UK)]03 June 2005: 4.