Crane et al.

Crane et al.
Business Ethics (5th Edition)

Chapter 2

© Crane et al., 2019. All rights reserved.

Crane et al.

Framing Business Ethics:

Corporate Responsibility, Stakeholders, and
Citizenship

Lecture 2

© Crane et al., 2019. All rights reserved.

 Overview

• Analyse the notion of responsibility for

corporations
• Distinguish the various concepts of CSR
• Present the stakeholder theory of the firm
• Outline the concept of corporate accountability
• Critically examine the notion of corporate
citizenship
• Discuss implications of these – mostly US-born –
concepts for different regions

Crane et al.: Business Ethics, 5th edition

 Towards a framework for business
ethics

What is a corporation?

Crane et al.: Business Ethics, 5th edition

 Key features of a corporation

• A corporation is essentially defined in terms

of legal status and the ownership of assets
• Corporations are typically regarded as
‘artificial persons’ in the eyes of the law
• Corporations are notionally ‘owned’ by
shareholders, but exist independently of them
• Managers and directors have a ‘fiduciary’
responsibility to protect the investment of
shareholders

Crane et al.: Business Ethics, 5th edition

 Can a corporation have social
responsibilities?
• Milton Friedman’s classic article is “The social
responsibility of business is to increase its
profits” (1970)
• Friedman vigorously argued against the
notion of social responsibilities for
corporations based on three main arguments:
– Only human beings have a moral responsibility for
their actions
– It is managers’ responsibility to act solely in the
interests of shareholders
– Social issues and problems are the proper
province of the state rather than corporate
managers

Crane et al.: Business Ethics, 5th edition

 Can a corporation be morally
responsible for its actions?
• Long, complex debate but generally support from
literature for some degree of responsibility
accredited to corporations. Argument based on:
– Every organisation has a corporate internal decision
structure which directs decisions in line with
predetermined goals (French 1979)
– All organisations manifest a set of beliefs and values
that lay out what is generally regarded as right or
wrong in the corporation – organizational culture
(Moore 1999)

Crane et al.: Business Ethics, 5th edition

 Corporate Social Responsibility

Crane et al.: Business Ethics, 5th edition

 Why do corporations have social
responsibilities?
• Business reasons (‘enlightened self-interest’)
– Extra and/or more satisfied customers
– Employees may be more attracted/committed
– Forestall legislation
– Long-term investment which benefits corporation
• Moral reasons:
– Corporations cause social problems
– Corporations should use their power responsibly
– All corporate activities have some social impacts
– Corporations rely on the contribution of a wide set of
stakeholders in society, not just shareholders

Crane et al.: Business Ethics, 5th edition

 What is the nature of corporate social
responsibilities?
Corporate social responsibility The attempt
by companies to meet the economic, legal,
ethical, and philanthropic demands of a given
society at a particular point in time. (p. 50)

Crane et al.: Business Ethics, 5th edition

 Carroll’s four-part model of corporate
social responsibility

Desired by society
Philanthropic
Responsibilities
Expected by society
Ethical
Responsibilities

Required by society
Legal
Responsibilities
Required by society
Economic
Responsibilities
Source: Carroll (1991)

Crane et al.: Business Ethics, 5th edition

 CSR in an international context

• CSR strong in US. Influence elsewhere is more recent.

This is partly explained by explicit vs. implicit CSR
• Regional differences exist with respect to all CSR levels:
– Economic responsibility
• Focus in USA on shareholders; France has extensive responsibility for
employees; India has tradition of investment in the local community
– Legal responsibility
• State seen in Europe as key enforcer of rules; elsewhere government seen
with more scepticism (e.g. corrupt, interfering with liberty)
– Ethical responsibility
• Wide range of local ethical values & preferences: expectations vary
– Philanthropic responsibility
• Europe tends to compel giving via legal framework; elsewhere (e.g., USA,
India, China), companies are expected to share their wealth.

Crane et al.: Business Ethics, 5th edition

 CSR and strategy: corporate social
responsiveness
• Strategies of CSR
– Traditional CSR
• Focus on risk. Reactive.
• No clear link to value creation and business model. CSR
is distribution of created value.
• “CSR is bolted on”
– Contemporary CSR
• Focus on reward. Proactive.
• Clear link to value creation and business model. CSR is
value creation.
• “CSR is built-in”

Crane et al.: Business Ethics, 5th edition

 Outcomes of CSR: corporate social
performance

• Outcomes of delineated in three concrete

areas:
– Social policies
– Social programmes
– Social impacts

Crane et al.: Business Ethics, 5th edition

 Stakeholder theory of the firm

Crane et al.: Business Ethics, 5th edition

 Stakeholder theory of the firm

• Theory developed by Edward Freeman (1984)

• A stakeholder of an organization is:
– …any group or individual who can affect, or is affected
by, the achievement of the organization’s objectives
(Freeman 1984:46)
• More precise definition of ‘affects’ and ‘affected
by’ (Evan and Freeman 1993)
– Principle of corporate rights - the corporation has
the obligation not to violate the rights of others
– Principle of corporate effect – companies are
responsible for the effects of their actions on others

Crane et al.: Business Ethics, 5th edition

 Stakeholder theory of the firm:
Traditional management model

Shareholders Customers

Firm

Suppliers Employees

Crane et al.: Business Ethics, 5th edition

 Stakeholder theory of the firm

Government Competitors

Shareholders
Customers

Firm

Suppliers Employees
Civil
society

Crane et al.: Business Ethics, 5th edition

 Stakeholder theory of the firm:
A network model
Customer
stakeholder
1
Governmen Competitor
t s
Customer
Customers stakeholder
Shareholde 3
rs Firm

Employee
Suppliers stakeholder
Employees 1
Civil society
Supplier Employee
stakeholder stakeholder
Civil society 2
1 Civil society stakeholder
stakeholder 1
2

Crane et al.: Business Ethics, 5th edition

 Why stakeholders matter

• Milton Friedman – businesses should only be

run in the interests of their owners
• Freeman - others have a legitimate claim on the
corporation
– Legal perspective
• ‘Stake’ in corporation already protected legally in some way
(e.g. legally binding contracts)
– Economic perspective
• Externalities – outside contractual relationships
• Agency problem – short term interests of ‘owners’ vs. long
term interests of managers, employees, customers etc.

Crane et al.: Business Ethics, 5th edition

 A new role for management

• According to Freeman, this broader view of

responsibility towards multiple stakeholders
assigns a new role to management.
• Rather than simply being agents of
shareholders, management has to take into
account the rights and interests of all
legitimate stakeholders:
– Stakeholder democracy
– Corporate governance

Crane et al.: Business Ethics, 5th edition

 Stakeholder thinking in an
international context
• One could argue that although the
terminology of stakeholder theory is
relatively new in places like Europe or Asia,
the general principles have actually been
practised for some time:
– German supervisory board includes employee
representatives
– “Scandinavian Cooperative Advantage” at IKEA,
Novo Nordisk, H&M, etc.
– ‘Keiretsu’ system in Japan (Chaebol in Korea), a
network of banks, manufacturers, suppliers and
service providers
Crane et al.: Business Ethics, 5th edition
 Different forms of stakeholder theory

• Donaldson & Preston (1995):

– Normative stakeholder theory: attempts to
provide a reason why corporations should take
into account stakeholder interests
– Descriptive stakeholder theory: attempts to
ascertain whether (and how) corporations actually
do take into account stakeholder interests
– Instrumental stakeholder theory: attempts to
answer the question of whether it is beneficial for
the corporation to take into account stakeholder
interests

Crane et al.: Business Ethics, 5th edition

 Corporate accountability

The firm as a ‘political’ actor

Crane et al.: Business Ethics, 5th edition

 Corporate accountability

• Corporate accountability refers to whether

a corporation is answerable in some way for
the consequences of its actions
• Firms have begun to take on the role of
‘political’ actors – taken up many of the
functions previously undertaken by
government because:
– Governmental failure
– Increasing power and influence of corporations

Crane et al.: Business Ethics, 5th edition

 Reasons for the political role of the firm

• Government failure
– Governments incapable? Unwilling?
• Rise of ‘subpolitics’

• Corporate power on the rise

– Liberalization and deregulation results in more power
and choice for private actors
– Privatization of ‘public’ services
– Responsible for employment decisions
– Globalization
– Governments increasingly encourage self-regulation

Crane et al.: Business Ethics, 5th edition

 The problem of democratic accountability

• Who controls corporations?

• To whom are corporations accountable?
• Key to corporate accountability is
transparency
• Transparency is the degree to which
corporate decisions, policies, activities and
impacts are acknowledged and made visible
to relevant stakeholders

Crane et al.: Business Ethics, 5th edition

 Corporate citizenship

Crane et al.: Business Ethics, 5th edition

 Defining corporate citizenship: three
perspectives
• A limited view of CC
– this essentially equates CC with corporate
philanthropy
• An equivalent view of CC
– this essentially equates CC with CSR
• An extended view of CC
– this acknowledges the extended political role of
the corporation in society

Crane et al.: Business Ethics, 5th edition

 Three views of corporate citizenship

Limited View Equivalent View Extended View

Focus Philanthropy, focused All areas of CSR Citizenship: social,

on projects, limited political and civil
scope rights

Main Stakeholder Local communities, Broad range of Broad range of

Group employees stakeholders citizens; society in
general

Motivation Primarily Mixed – economic, Political

philanthropic; also legal, ethical,
economic where philanthropic
citizenship is
strategies
Moral Grounding Reciprocity, i.e. Duty to be Grounding is not
‘putting something responsible and moral but comes
back’ avoid harms to from changes in the
society political arena
Source: Crane et al (2019)
Crane et al.: Business Ethics, 5th edition
 An extended view of CC

Corporate citizenship

Social role of the corporation in governing citizenship

Social rights corporation as provider/ignorer

Civil rights corporation as dis-/enabler

Political rights corporation as channel/blockage

Crane et al.: Business Ethics, 5th edition

 Assessing corporate citizenship as a
framework for business ethics

Extended view of CC adds something significant

that helps us frame business ethics in new ways:
• Helps us better see the political role of the corporation
• Clarifies the demand for corporate accountability
• Helps to understand business in relation to common
citizenship rights within different cultures and some of the
challenges posed by globalization
• The rights of citizenship have strong links to the goal of
sustainability
• Provides a critical perspective on corporations’ social role
that is more in keeping with non-US ways of thinking
about business ethics

Crane et al.: Business Ethics, 5th edition

 Corporate Citizenship Statements
Company Industry and Corporate Citizenship Statement (emphasis added) Source
Country of
Origin
BMW Automobile, Corporate citizenship forms an integral part of how the BMW group https://www.bmwgroup.co
Germany defines itself as a company. With this in mind, we address current m/en/responsibility/gesellsc
challenges in society and focus on those areas in which we can apply haftliches-
our core expertise to achieve specific and measurable improvements. engagement/corporate-
We believe that our corporate citizenship activities contribute towards citizenship.html
mastering challenges in society, while at the same time brining
economic benefits to the company.
Citibank Financial Services, At Citi, we intentionally use the work ‘Citizenship’ to describe these https://www.citigroup.com/c
US efforts because the word reflects a sense of belonging to communities iti/about/citizenship/issue-
that extend well beyond our firm. It also reflects a longstanding areas.html
recognition that our success is inextricably linked to the positive
outcomes and progress we can help enable for others. And its an
acknowledgment that we take our responsibility to use our many
strengths and resources to contribute to the greater good very seriously.
Distell Brewing and We are committed to being a caring, socially and environmental https://www.distell.co.za/co
beverage, South responsible corporate citizen that conducts business with fairness and rporate-responsibility/
Africa integrity, This includes contributing to safe and responsible alcohol
consumption, driving socio-economic transformation and championing
ethical conduct.
Panasonic Electronics, Japan Panasonic is promoting corporate citizenship activities (social https://www.panasonic.com
contribution activities) and working to solve social issues around the /global/corporate/sustainab
world. Panasonic, as a global corporate citizen, aims to be a benefit to ility/citizenship.html
the environment by creating more energy than it uses.

Source: Crane et al (2019)

Crane et al.: Business Ethics, 5th edition
 Summary

• Business ethics is related to the social role of the

corporation
• Confining corporations to commercial activities
too limited
• Different perspectives and their relevance in
European context
– CSR
– Stakeholder theory
– Corporate accountability
• Effects of globalization on role of corporation
• Corporate citizenship is latest concept in the field

Crane et al.: Business Ethics, 5th edition