CHAPTER 1 - SOCIAL RESPONSIBILITY
Ethical Responsibility:
FRAMEWORK
Social Responsibility Defined
● The adoption by a business of a strategic
focus on fulfilling the economic, legal,
ethical, and philanthropic responsibilities
expected of it by its stakeholders
● Applies to all types of businesses to further
relationships with customers, employees,
and the community
● Fulfills societal expectations and economic
responsibilities
● Strategic responsibility is realized when a
company has integrated a range of
expectations, desires, and constituencies
into its strategic direction and planning
processes
Four Types of Social Responsibility
● Viewed holistically, all four areas related and
integrated.
● Continuous because customers, employees,
investors/stakeholders, suppliers,
governments, communities, all have some
sort of stake within the company
(stakeholders).
1. Financial Viability:
❖ Also known as Economic Responsibility
❖ Being financially or economically viable
❖ Provides return on investment for their
owners
❖ Create and sustain jobs for the
community
❖ Contribute goods and services to the
economy
❖ Example: Starbucks offers investors a
healthy return on investment, including
paying off dividends.
2. Legal Responsibility:
❖ Obeying laws and regulations
❖ The society and shareholders
mandatorily require a firm to perform its
legal responsibility
❖ Example: Starbucks specifies in its code
of conduct that payments made to foreign
government officials must be lawful
according to the laws of the U.S. and the
foreign country.
3.
❖ Companies must decide what they
consider to be just, fair, and right
❖ Realm of ethics, principles, and values
❖ Business ethics refers to the principles
and standards that guide behavior in the
world of business
❖ Principles are specific and universal
boundaries for behavior that should
never be violated
❖ Values are enduring beliefs and ideals
that are socially enforced
❖ Example: Starbucks offers healthcare
benefits to part-time employees and
supports coffee growers so they get a fair
price.
4. Philanthropic Activities:
❖ Results from a society's mere
expectations of a business
❖ Promoting human welfare or goodwill
❖ Contribute to their communities and
society
❖ Improve the quality of life
❖ Example: Starbucks created the
Starbucks Foundation to award grants to
eligible nonprofits and to give back their
communities.
How does the “strategic focus” work?
● Requires a formal commitment from top
management
● Communicated through mission and vision
statements, annual reports, websites, &
public relations
○ Mission statement - A summary of
a company's aims and values
○ Vision statement - A description of
a company's current and future
objectives to help align decisions
with their philosophy and goals.
● Requires action and results
● Depends on collaboration and coordination
across business and among constituencies
● Large companies often create specific
positions and departments to support social
responsibility programs
Key Stakeholders of the Organization
● Those constituents who have a stake in, or
claim on, some aspect of a company’s
products, operations, markets, industry, and
outcomes
● Those groups to whom a company is
responsible are collectively known as:
○ Customers
○ Employees
○ Investors
○ Stockholders
○ Suppliers
○ Government
○ Communities
● Stakeholder Orientation is a pattern of
responsibility, values, behavior, and
decision-making, where the managers
decide to act in the interest of various
stakeholders (more in Ch .2)
Development of Social Responsibility
1940s
❖ Economic dominance of corporations
❖ Total autonomy of top management
1950s-60s
❖ The concept of social responsibility began
to emerge as a result of the rise of social
and environmental movements.
❖ Organizational charitable giving expanded
❖ Laws passed that require protection of the
natural environment, safer products,
promotion of equity, and supporting
workplace diversity
❖ 1959 Harvard economist Edward Mason
asserted that business corporations are "the
most important economic institutions"
❖ After World War II, many large U.S. firms
came to dominate the global economy, their
actions inspired imitation in other nations.
1970's-1980's
❖ Emphasized the social and ethical
responsibilities of businesses
❖ Firms that dominated the economy in the
1950's and 1960s became less important as
a result of bankruptcies, takeovers,
mergers, or other threats, including high
energy prices and an influx of foreign
competitors.
❖ Flatter organizations (downsizing)
❖ More business scandals
❖ Empowerment of lower-level employees
❖ Focus on profitability and economies of
scale
❖ Fortune 500 had low turnover of 4%.
1990's
❖ Corporate scandals at the beginning of the
21st century prompted a new era of social
responsibility.
❖ Less employee loyalty and increased "job
hopping"
❖ Growth of temporary employment
❖ Greater interest in ethics and social
responsibility
❖ Shift towards a focus on sustainability and
creating shared value for all stakeholders
2000s
❖ Special interest groups, companies, human
rights activists, and government strive to
balance economic and social goals
❖ Major scandals damage the global economy
Lessons Learned from Economic Crises
● Transparency
● A long-term perspective
● Liquidity
● Limited use of derivatives
● Absence of rating triggers
● Minimal counter-party exposure
● Diversification
Globalization
● Increasing globalization of business has
made social responsibility of international
concern.
● In developed countries, social responsibility
is given to a variety of stakeholders.
● Global social responsibility also involves
responsibility to a confluence of
governments, businesses, trade
associations, and other groups.
● Results from the partnerships among
businesses, communities, governments,
and other stakeholders.

Global Nature of Social Responsibility
● Who determines social responsibility on a
global scale?
a. Host country
b. Home country
c. Outside organizations
Benefits of Social Responsibility
➢ Greater trust with stakeholders
➢ Greater customer satisfaction
➢ Stronger employee commitment
➢ Stronger investor loyalty
➢ Greater profitability
➢ Better decision-making
➢ Efficiency in daily operations
Social Responsibility and Performance
1. Stakeholder Trust
2. Customer Loyalty
3. Employee Commitment
4. Shareholder Support
SR Builds Stakeholder Trust
● Trust is the glue that holds organizational
relationships together.
● Stephen Covey contends that low trust
results in organizational decay and
relationship deterioration.
● Trusting relationships between managers
and their subordinates and between peers
contribute to greater decision-making
efficiencies
● Trust is essential for a company to maintain
positive long-term relationships with
customers
● Cone Communications study reported that
42% of consumers have boycotted or
refused to purchase from companies that
have demonstrated irresponsible behavior
in the last 12 months
SR Adds to Customer Loyalty
● A company should strive to market products
that satisfy customers' needs through a
coordinated effort that also allows the
company to achieve it own objectives
● By focusing on customer satisfaction, a
business can strengthen its customers'
trust, and as their confidence grows, this in
turn increases the firm's understanding of
their requirements
● 89% of consumers in a Cone survey
indicated they would switch to brands
associated with a good cause if price and
quality were equal
SR Strengthens Employee Commitment
● The greater a company’s dedication to
employees, the greater the likelihood that
employees will take care of the
organization.
● Employee commitment stems from
employees who are empowered with
training and autonomy
● Service quality is positively related to
employee loyalty which leads to higher
customer satisfaction and customer loyalty
● If firms fail to provide value for their
employees, loyalty and commitment suffer
● What happens when employee loyalty is
breached?
○ Quality is compromised.
○ Service is compromised.
○ Efficiency decreases.
SR Contributes to Shareholder Support
● Investor relationships require dependability,
trust, and commitment.
● Investors look at a corporation's bottom line
for profits or the potential for increased
stock prices
● Many shareholders are also concerned
about the reputation of companies in which
they invest
● 50% of investors sell their stock in
companies within one year
● Focus on short-term gains subjects
corporate managers to tremendous
pressure to boost short-term earnings (often
at the expense of long-term strategic plans)
● Attracting long-term investors shields
companies from the vagaries of the stock
market and gives them flexibility and
stability in long-term strategic planning
● In the long run, the success of a company is
built on long-term relationships with
 customers built on mutual respect and
cooperation that leads to repeat purchasing.

The Bottom Line: Profits

● Social responsibility is positively associated
with:
○ Return on investment
○ Return on assets
○ Sales growth
● Studies have identified a positive
relationship between social responsibility
and financial performance
● Company with strong efforts and results in
social responsibility is generally not
penalized by market forces

Framework for Studying Social Responsibility

1. Idea of Social Responsibility
2. Strategic Management of Stakeholder
Relationships
3. Corporate Governance
4. Legal, Regulatory, and Political Issues
5. Business Ethics and Ethical Decision
Making
6. Strategic Approaches to Improving Ethical
Behavior
7. Employee Relations
8. Consumer Relations
9. Community Relations and Strategic
Philanthropy
10. Technology Issues
11. Sustainability Issues
12. Social Responsibility in a Global
Environment

(based in Sir OD’s learning objective)