Crane and Matten

Business Ethics (3rd Edition)

Chapter 2
 Framing Business Ethics:
Corporate Responsibility, Stakeholders, and Citizenship

Lecture 2
 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
Towards a framework for business
ethics

What is a corporation?
 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
 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
 Can a corporation be morally
responsible for its actions?
• Evidence to suggest that legal designation of a
corporation makes it unable to be anything but
self-interested (Bakan 2004)
• 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)
Corporate Social Responsibility
 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
What is the nature of corporate social
responsibilities?
Corporate social responsibility includes the
economic, legal, ethical, and philanthropic
expectations placed on organizations by
society at a given point in time
(Carroll and Buchholtz 2009:44)
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)
 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.
 CSR and strategy: corporate social
responsiveness
• Corporate social responsiveness refers to
the capacity of a corporation to respond to
social pressures (Frederick 1994)
• 4 ‘philosophies’ or strategies of social
responsiveness (Carroll 1979)
– Reaction
– Defence
– Accommodation
– Proaction
 Outcomes of CSR: corporate social
performance

• Outcomes delineated in three concrete areas:

– Social policies
– Social programmes
– Social impacts
Stakeholder theory of the firm
 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
 Stakeholder theory of the firm:
Traditional management model

Shareholders Customers

Firm

Suppliers Employees
 Stakeholder theory of the firm

Government Competitors

Shareholders Customers
Firm

Suppliers Employees
Civil
society
 Stakeholder theory of the firm:
A network model
Customer
stakeholder 1

Government Competitors

Customer
Customers stakeholder 3
Shareholders
Firm
Employee
Suppliers stakeholder 1
Employees
Civil society
Supplier Employee
stakeholder 1 stakeholder 2
Civil society
Civil society stakeholder 1
stakeholder 2
 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.
 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
 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
– ‘Keiretsu’ system in Japan (Chaebol in Korea), a
network of banks, manufacturers, suppliers and
service providers
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
Corporate accountability

The firm as a ‘political’ actor

 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
Reasons for the political role of the firm

• Government failure
– Risk society thesis
• Rise of ‘subpolitics’
• ‘Organized irresponsibility’
• 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
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
Corporate citizenship
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
 Commitments to corporate
citizenship
Company Industry & CC statement (emphasis added) Source
origin
BHP Mining, … The Company’s community investment programs should create sustainable, Sustainability
Billiton Australia long-term value for our host communities and demonstrate the Company’s Report, 2008
citizenship. The critical question in regard to our success is whether we have
managed to leave a lasting positive legacy in the communities where we operate.

Citibank Banking & We define citizenship as the positive impact that Citi has on society and the 2007 Citizenship
financial environment through its core business activities, philanthropy, diversity efforts, Report
services, USA volunteerism and public policy engagement, as well as the philanthropic initiatives
undertaken by the Citi Foundation.
Microsoft Software, USA Microsoft’s endorsement of the UN Global Compact signifies that we are Citizenship
committed to aligning our business operations and strategies with 10 established Report 2009
principles […] Principles – which correspond with Microsoft’s global corporate
citizenship values – help guide our efforts to achieve greater accountability and
drive continuous improvement of our business practices.
Total Oil & gas, Total is committed to contributing to the sustainable development of host CSR Report,
France communities around the world. In addition to being a normal part of good 2007
corporate citizenship, this policy fosters good relationships with neighbors and
greater acceptance of our operations.
Toyota Automobiles, The Corporate Citizenship Division was organized in January 2006 as a Sustainability
Japan specialized division to reinforce corporate social contribution activities and Report, 2008
integrate corporate social contribution functions that had been performed by
multiple divisions.
 Three views of corporate citizenship

Limited view Equivalent view Extended view

Focus Philanthropy, focused on All areas of CSR Citizenship: social, political and
projects, limited scope civil rights

Main Local communities, Broad range of stakeholders Broad range of citizens; society
stakeholder employees in general
group

Motivation Primarily philanthropic; Mixed – economic, legal, Political

also economic where ethical, philanthropic
citizenship is ‘strategic’

Moral Reciprocity, i.e. ‘putting Duty to be responsible and Grounding is not moral, but comes
grounding something back’ avoid harms to society from changes in the political arena
 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

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
 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