Chapter 5 - 6: Corporate Social Responsibility

Introduction to Corporate Social Responsibility

- Also: CSR, corporate citizenship, stakeholder + Avoid harm to societal assets & negative
management, sustainability. impacts.
- Premise is that companies have obligations + Enhance or Protect societal assets - create
beyond those imposed by law. positive impacts.
- Duty of a corporation to create wealth in ways
that:
Arguments Favoring CSR
- Dual benefits flow from CSR
+ External benefits: Good publicity for those outside the company.
e.g: Company’s sign displayed at athletic event or recognition in program for school musical (Rockview
Farms).
+ Internal benefits: Good morale for those inside the company.
e.g: employees work together in setting other than the office, to do work for charitable purposes ( e.g., office
workers deliver food or Christmas gifts to poor families) or to have fun at a social event after engaging in CSR.
- CSR: unwarranted cost - management’s focus should be profit-max for the benefit of ownership not charity.
- CSR: no definitive meaning - Reasonable people disagree if and how company should be socially responsible.
History of CSR in the United States
Early Charity
- Inclination was to be thrifty, but charity thrived, too.
- Great fortunes made by generous givers; e.g., Stephen Girard, John D. Rockefeller, Andrew Carnegie.
- Charity often influenced by “Social Darwinism” (Herbert Spencer), which promoted making donations for the
benefit of large institutions (e.g., universities) or to build grand projects (e.g., concert halls, school buildings)
instead of giving to one poor individual
Late 19th Century & Early 20th Century: Progressives had three themes
- Managers are trustees who act in favor ownership and other stakeholders: employees, consumers,
communities.
- Managers should balance these competing interests.
- Many managers believed in the service principle which held that aggregate success of all businesses would
serve society by eliminating society’s ills (“rising tide lifts all boats”).
e.g: Henry Ford; General Robert E. Wood.
Mid-20th Century to the Present: Competing outlooks on CSR
- Howard R. Bowen: public had expectations that went beyond profit-maximization; basic arguments for CSR.
- Milton Friedman: maintained that sole responsibility of company was to maximize profits while acting legally.
CSR - Externally-Mandated Actions
- Government regulation: Laws imposed on - Civil or private regulation: Demands made by
business by government entities according to state’s private entities (activists and consumers); failure to
authority; failure to comply →criminal and/or civil comply →reputational and/or financial damage.
penalties. e.g: proposal boycott advertisers on media outlets
e.g: local zoning statute; Supreme Court decision employing former Trump Administration officials;
interpreting Constitution. TV ads, billboard about bad side effects of
cigarettes.
Basics of CSR
- Companies are economic institutions →First obligation: make profit; without profits, no money for CSR.
- All companies must follow multiple sets of laws.
+ Many laws (local, state, federal, foreign, international) govern all businesses.
+ Law is minimum requirement (moral minimum); reacts to cutting-edge issues (reactive not proactive).
- Management must act ethically. + Not just according to the law but also ethics.
+ Establish policies & procedures for company.
- Companies have a duty to correct adverse social impacts they create.
+ Should internalize external costs instead of relying on society to bear those costs.
+ “If you make a mess, you should clean it up.”
- CSR varies with company characteristics (size, industry, location) →social obligation vary many factors.
- Management should try to meet legitimate needs of multiple stakeholders
+ Fiduciary duty is owed to ownership but may not be possible or legally required to meet their interests only.
+ Other stakeholders have legitimate and even legally-required needs.
Relationship Between Social and Financial Performance
- Studies: + CSR and profits go together. + Profitability more objective; can be interpreted
+ Mixed, inconclusive, negative findings! (manipulated?)
- Difficulties in doing these studies: e.g., last quarter’s profits vs. value of stock vs.
+ No certain definition of CSR →no objective assessing value of long-term profitable assets like
ranking system possible. intellectual property.
Managing and Leading the Responsive Company
- Top management sets tone for company’s social response - what is “corporate culture” when it comes to CSR?
- Sources of Pressure of CSR: Communities, Competitors, Advocacy groups, Stockholders/ Investors,
Customers, Employees, Events/ Crises, Governments, Multilateral Organizations, Philanthropic Requests.
- A few companies founded by progressive visionaries who make social responsibility central to their business
model; e.g., Ben & Jerry’s Ice Cream - founded to promote social causes like world peace (expansive response).
- Based on traditional business models, companies have cultures emphasizing voluntary social responsibility in
one or more dimensions due to influence of founders; e.g., Bertelsmann AG - primary goal: make society better.
- Most companies have no CSR agenda outlined; their ethical path is marked by the law (narrow response).
- Companies can respond to social demands to varying degrees.
+ Narrow response  Reactive in nature, at least will listen.
 Obey the law & deny any further obligations. + Expansive response
 Make a profit.  Anticipate new demands and alter behavior
+ Intermediate or medium response before any pressure - proactive approach.
 Obey the law.  Make CSR a competitive weapon.
 Respond to demands, accept additional duties
Corporate Philanthropy
- Large philanthropic contributions by American companies are a relatively recent phenomenon.
- 80 years ago, courts held that corporate funds belonged to shareholders and, therefore, managers had no right
to give away money, even for noble motives.
- Corporate donations were deemed to be ultra vires (illegal) according to the corporation’s charter.
- However, the law in this area started to change in the 20th Century; examples of these changes include
+ The first major break from narrow legal restrictions on corporate giving - the Revenue Act of 1935: allowed
charitable contributions to be deducted from taxable earnings up to 5% of net profits before taxes (10% in
1981.)
Patterns of Corporate Giving
- Charitable giving is now a traditional dimension of corporate social responsibility.
- Corporate philanthropy is only a small part of overall private philanthropy in the U.S. and only a tiny portion
of overall welfare spending.
- Basic motives for corporate giving: Response to pressure; Belief that it will bring monetary profit; Desire for
reputational gain; Altruism.

Chapter 7 - 8: Business Ethics

Introduction to Business Ethics
- “Ethics”: the study of right and wrong. - Problematic ethical issues are encountered
- “Business ethics”: The study of right & wrong in frequently in business.
business world. Not a study of a different type of - “applying clear guidelines resolves the vast
ethics; A subset of the study of ethics in general. majority of them”.
Two Competing Theories of Business Ethics
- Ideal for ethics to be the same all the time because you are the same person no matter what setting (moral
unity).
- Natural & necessary to apply different ethical guidelines at work, at home, in social situations, in different
personal relationships → different settings can justify different ethics.
- Especially true at work due to the pressures and responsibilities created by our competitive economic system
based on capitalism; this could justify lower ethics (amorality).
- Moral unity and Amorality are two fundamentally different ethical theories.
+ Moral Unit: Business should be judged by same  “compromised ethics” - acceptable since
ethical rules as other parts of society; there should competition causes business’ actions to result in
not be different ethics for work and the rest of life. benefits to society.
 Examples: J.C. Penney’s story; Religious  Examples: Person is active at place of worship
beliefs applied to business practices (Jim Edson but will engage in “big lies” (deceptive business
painting; Chick-Fil-A closed Sundays). practices) or “little lies” (avoiding phone calls/e-
+ Amorality: Business should be amoral and not mails/texts at work); Businessperson is kind and
guided by the full range of society’s ethical charitable in personal life but rough and cheap in
standards. business.
Sources of Business Ethics
Religion: Divine being or will determines what is right and wrong.
- Guidelines found in sources - Examples
+ Inspired writings: Bible, Koran, Torah, + Employee will not work on a certain day of the
teachings of Buddha. week as a religious observance.
+ Doctrine: rules & principles created which are + Business owner will not sell or serve alcoholic
supposed to be consistent with inspired writings. beverages because it violates religious beliefs.
Philosophy: Informed by wisdom of men & women (“mere mortals”) as opposed to divine guidance shown by
ancient Greek philosophers (Socrates, Plato, Aristotle) all the way through to present-day thinkers (Michael
Josephson - founder of the Joseph and Edna Josephson Institute of Ethics).
- Examples: Cost-cutting a priority over other interests (workplace morale, customer satisfaction); Family stay
home instead of traveling because the price of gas & travel expenses are too much.
Culture: Beliefs transmitted between gens based on traditional values, rules, standards for acceptable behavior.
- Two schools of thought + Ethical relativism: ethical values created by
+ Ethical universalism: human nature is common cultural experience →no ethics universal standard.
→same basic ethics apply; room for differences. - Examples
 + Person makes a joke equating people from a cultural background: joke is funny; others:
certain country with terrorists →people of one offensive.
+ “Family values” or “that’s how I was raised.”
Law: codification or formalization of ethics so all laws are the product of someone’s ethics (e.g., politician
votes for or against a law due to cultural background or religious beliefs).
- Regulation of business achieved through threat of judgment of damages (money) in a civil lawsuit.
+ Compensatory damages: victim compensated for financial loss (bills, lost profits, emotional distress).
+ Punitive damages: wrongdoer is punished for intentional tort; e.g., fraud.
- Examples: Business owner has “zero tolerance” policy about sexual harassment to avoid liability for
employee’s misconduct; Company lawyer reviews all contracts before signing.
Fourteen Ethical Principles
Categorical Imperative (Kant) Intuition Ethic
- What happen if everyone did the same thing? - “What is good is simply understood” reliance on
What if what you did became the universal law? inner moral sense & intuition (gut feeling, vibe).
- e.g: littering; punch someone in the face. - e.g: businessman feels (un)comfortable in 1st
Conventionalist Ethic meeting client; 1st impression of professor/student.
- Business is a game; actions based on lower ethics Might-Equals-Right Ethic
which further one’s interest acceptable if not violate - “right” is determined by what stronger entity or
law; “shady” but not illegal. person can impose on weaker one.
- e.g: trans-woman competes in women’s event; - e.g: John D. Rockefeller; Trump Organization;
maintained that an election was “rigged” although government of large country (US, China).
judges rejected claims of fraud, improprieties. Organization Ethic
Disclosure Rule - Be loyal to the organization; Put the company’s
- “Others” or “media” tests: what if others knew interest ahead of your own interest.
truth about what you did or plan to do. - e.g: employee does great work but no personal
- e.g: job decision made for illegal or immoral life; emphasis team’s achievement not individual
reason (what if the boss or public found out); illicit glory.
personal relationship (“what would Mother say”). Principle of Equal Freedom
Doctrine of the Mean - Right to act unless the action deprives sb else’
- Virtue achieved through moderation right.
- Avoid excessive or virtue-deficient behavior. - e.g: swing your fist ends where my nose begins.
- e.g: not eating or drinking too much; keeping Proportionality Ethic
consistent work schedule (not working too much/ - Making decisions has good & bad consequences.
little on given day); “Flight of Icarus” (Greek - Principle of proportionality.
myth). - Principle of double effect.
Ends-Means Ethic (similar to Conventionalist Ethic) Rights Ethic
- Results justify the means; illegal conduct - Everyone has rights that others must respect.
permitted. - Natural rights inferred by reason from study of
- e.g: entertaining clients with illegal drugs; human nature; these often ultimately became legal
industrial espionage; cheating to get high grade. rights that are imposed on society as a whole.
Golden Rule Theory of Justice
- Do unto others as you have them do unto you. - Act for common good & maintain community.
- e.g: let sb merge in front of you in heavy traffic, - e.g: constitutional guarantees of equal protection
share limited food/water supply because you would and due process.
like it if others did the same for you. Utilitarianism
- The greatest good for the greatest number; benefits
are maximized for majority.
- e.g: how to reduce payroll forced by declining
revenues but still keeping employees; COVID-19
Practical Approaches to Ethics
- “Pay attention to ethical intuition” (intuition
ethic).
- “Set an example”: person in charge is a “role
model” to workers under his or her supervision.
- “Ethical deeds often require courage”: put ethics
in action strain or end personal and professional
relationships.
orders: attempt to prevent the spread of a deadly
disease throughout the city, state, country, world.
Warning Signs
- “Here’s how we get around that” (conventionalist
ethic).
- “What happens in Vegas, stays in Vegas” or “This
is Vegas” (may substitute other place: Macau,
Bangkok, …).

Chapter 15: Negligence, Product Liability and Damages for Injury Cases
History of How Courts Dealt With Injury Cases
- “Tort”: wrongful act (not based on contract) that - Manufacturing - a big part of U.S. economy, took
results in injury to another for which the injured off due to the IR (mid - late 19th Century).
party is entitled to compensation. - Therefore, the courts were reluctant to rule against
- In the past, the buyer/user bought/used a product manufacturing and other business interests through
at own risk or caveat emptor (“let the buyer the first half of the 20th Century.
beware”).
Current Purposes of Tort Law: Tort law has two purposes
- Compensation - Deterrence: Ppl/entities change/discontinue
 Injured party is entitled to be compensated by products/behavior to avoid being subject to legal
person/entity causing the injury. action and exposure to adverse judgments.
 Money solve the problem: compensating - Safer product & workplace, adopt safety rules to
plaintiff for losses that can be measured in avoid lawsuits & adverse judgments (Barbie Jeep).
financial terms.
Negligence
- Most popular legal theory used in tort cases; e.g., cases involving defective products or car accidents.
- Intentional misconduct is not required; negligence involves an accident, inattention, misjudgment, mistake or
carelessness (“you just messed up”).
- Differentiate from intentional tort which requires some kind of conscious action; e.g., running the red light
“on purpose” as opposed to “I misjudged the light.”
Elements of Negligence: Plaintiff must prove all four elements or judgment will be entered in favor of
defendant
Duty of care: Certain standard to follow: be careful, + Driver’s duty to ppl in the area:
pay attention to what you are doing, or follow passengers, other drivers, pedestrians, property
applicable laws or industry standards. owners.
- Defendant must owe a duty of care to plaintiff, + Duty owed by apartment house owner to
who may be one person or one of a specific group. build and maintain safe premises.
- E.g: + Duty owed by manufacturer or assembler Breach: Failure to exercise ordinary or reasonable
of product to person buys or uses product. care & meet requirements imposed by applicable
laws; e.g., traffic laws, building codes.
- Defendant breaches duty of care owed to plaintiff.
- E.g: + Defendant’s product sold to plaintiff is not + Palsgraf v. Long Island RR
assembled correctly or part is missing. (foreseeability).
+ Texting and driving. + Events at the U.S. Capitol (Jan 6, 2021).
+ Poor maintenance →slippery, rough floor. Damages
Causation: Logical, reasonable relationship - Plaintiff’s financial loss, based on many things
between defendant’s bad act and plaintiff’s financial - Plaintiff build a negligence case on serious injuries
loss. or financial loss (due to “sympathy” factor) but will
- Look to “foreseeability” whether plaintiff’s injury not be able to show causation and therefore will
was a foreseeable result of defendant’s bad act. lose.
- E.g: + Vons truck driver case.
Defenses to Negligence
- Assumption of the risk: plaintiff cannot win negligence case as he injured while purposely in dangerous
situation
 Traditional scenario - “firefighter’s rule”: Injury suffered while performing dangerous job.
E.g: firefighter injured while fighting caused by homeowner’s negligence cannot win negligence case vs.
homeowner.
 More current scenario: injury suffered while plaintiff engaged in recreational or sports activities.
E.g: ppl injured due to opponent’s negligence while playing basketball cannot win negligence case vs.
opponent.
- “It’s someone else’s fault!”
 Comparative negligence: liability proportionate to percentage of plaintiff’s fault; recognizes that plaintiff
may contribute to the accident but should still be entitled to some money.
E.g: product assembled incorrectly by retailer, plaintiff careless while using; both drivers in accident are
careless.
 3rd party’s fault: liability proportionate to percentage of negligence or other tort of 3 rd party who can be co-
defendant or anyone else who caused injury.
 Superseding/intervening cause: is there a break between defendant’s bad act and plaintiff’s damage?
E.g: unassembled product provided by manufacturer to retailer/independent contractor/consumer who then
incorrectly assembles product; person’s injuries from accident made worse by negligent medical treatment.
Product Liability
- (Strict) Product liability: will be injuries resulting - Theory developed as a policy decision
from intended use of mass-produced product. Others (not injured consumer or bystander) should
E.g: Greenman v. Yuba Power Products and other be legally responsible for damage caused by
“intended use” products i.e., manufacturer, retailer
Product Liability - Defect Theories: Three types; More than one theory might apply to same situation.
Manufacturing Defect: a problem in Design Defect: a problem in the design causes the
manufacturing causes the product to be assembled product to be inherently defective resulting in injury
improperly causing injury even product used as even if product used as intended.
intended. - E.g: Ford Pinto gas tank lawsuit, Barbie Jeep case.
- E.g: drawer in Tim’s new dresser with no Warning Defect: an inadequate/lack of warning
bumpers. results in injury that could have been avoided with
proper warning even product used as intended.
- E.g: warnings on plastic bags; aerosol spray case.
Personal Injury Cases - What Can Plaintiff Win in Court?
- Goal of tort case is compensation; no financial  Special damages can be calculated, supported
loss → no need for compensation → plaintiff loses. by documentation or clear evidence; assign as
- Compensation in a tort case falls into two X.
categories: Special damages & General damages.  General damages: multiply the amount of
- Special damages can be measured in exact terms special damages by three; assign a value of 3X.
 Easiest to prove since documentation and/or  Add these two up (X + 3X) and you often get a
other clear way to show amount and other reasonable settlement figure.
details.  Factors (legal & non-legal) come in calculation
 Examples: medical bills in personal injury case; → higher or lower number for general damages.
contract or testimony to show loss of income. - Punitive damages: money awarded as punishment
- General damages are intangible “quality of life” - in addition to special and general damages.
damages, harder to prove with any precision - No punitive damages in negligence & product
 “Emotional distress” or “pain and suffering” are liability cases, only available for intentional torts:
common phrases used for general damages. fraud, defamation, assault and battery; Exception
 Every case is different based on facts, victim, based on intentional misconduct - Ford Pinto gas
and “badness” of the defendant’s conduct. tank case.
- How to evaluate damages for settlement purposes; - No injunction (judgment ordering defendant to
after all, the vast majority of lawsuits do not go to stop ongoing or threatened bad act) is available;
trial since most are settled (others are dismissed). threat of judgment of damages is designed to serve
- Ordinary injury case: negligence or product as deterrent to misconduct.
liability
McDonald’s Case Studies
- Pelman v. McDonald’s – guardians of two obese children filed suit seeking to hold McDonald’s responsible
for the children’s weight and related health problems.
- Liebeck v. McDonald’s – the “hot coffee” case.

Read “Warning Signs” (textbook, page 259) on your

own before class and then discuss with small groups
in class