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Corporate social

• Although corporations are primarily
business organisations , run for the
benefit of shareholders ,they have wide
ranging set of responsibilities– to their
own employees, to customers and
suppliers ,to the communities in which
they are located and to society at large.

• Most organisations recognise these
responsibilities and make serous efforts
to fulfill them.
• The concept of CSR originated in the
1950’s , when American corporations
rapidly increased in size and power.

• During 1960’s and 1970’s the concept
was publicly debated as the nation
confronted pressing social problems
such as poverty, unemployment, race
relations ,urban blight and pollution.
• CSR became a rallying cry for diverse
group demanding change in
American business.
• Turn of the 20th century corporations
came under attack for being too big
and powerful Curbs on their power
began with antitrust and consumer
protection laws .

• Farsighted industrialists (e.g. Andrew
Carnegie) started philanthropic efforts
aimed at educational and cultural
institutions .
• • Others (e.g. Henry Ford) started
paternalistic programs to support
employee social and health needs .

• View that business leaders had a
responsibility that went beyond just
making a profit became more
widespread, called the “Charity Principle.
Definition of the concept

• It is often expressed as the voluntary
assumption of responsibilities that go beyond
the purely economic and legal responsibilities of
business firms.

• It implies corporate willingness to forgo certain
measure of profit in order to achieve
noneconomic ends.
• Corporate social responsibility can thus be
defined as “ bringing corporate behavior up to a
level where it is congruent with prevailing social
norms ,values and performance.
• According to A B Carroll CSR refers to “additional
behaviors and activities that are not necessarily
codified into law but nevertheless are expected
of business by society’s members .
Examples of social responsibilities
• Choosing to operate on a ethical level
that is higher than what the law
• Making contributions to civic and
charitable organisations and non profit
• Providing benefits for employees and
improving the quality of life in the work
place beyond economic and legal
• Taking advantage of economic
opportunity that is judged to be less
profitable but more socially desirable
than some alternatives.

• Using corporate resources to operate
a program that addresses some
major social problem.
Debate over social
• In the classical view ,corporations
should engage in purely economic
activity and be judged in purely
economic terms. Social concerns are
not unimportant , but they should be
left to other institutions.
• The moral minimum of the market- the
business has only one responsibility and
that is ‘ to obey the elementary canons
of every day face to face civility
(honesty good faith and so on) .
• The moral minimum of the market
also includes the obligation to
engage in business without inflicting
injury on others . thus , corporations
in a free markets have an obligation
not to pollute the environment and
to clean up any pollution they cause.
• Giving a helping hand to government
– the classical view assumes that
business is best suited to provide for
the economic well bieng of the
members of a society ,wheras
noneconomic goals are best left to
government and other noneconomic
institutions of society.
• However, the issues raised by the debate
over corporate social responsibility on the
classical view is only part of the larger
controversy over the governance of modern
corporation .

• Who should control a corporation ? Whose
interest should the corporation serve ? To
these question of CG we now turn.
• A corporation brings together many
different groups – most notably managers ,
employees , suppliers , customers and of
course ,investors – for the purpose of
conducting business .

• Because these various corporate
constituencies have different sometimes
conflicting interests , the question arises : In
whose interest the corporate be run
• whether corporations ought to serve the
interest of the shareholders alone or the
interest of wider range of constituencies
depends on the theory of the firm we
accept as mentioned below :

• Property rights theory.
• Social institution theory.
• Contractual theory .
• Is the corporation the private property of
the stock holders who choose to do the
business in the corporate form , or is the
corporation public institution sanctioned
by the state for some social good.

• In the former view ,which may be called
the property right theory . The latter
view-may be called as social institution
• A third view is the contractual theory
of the firm.
• In a contractual theory, share holders ,
along with other investors , employees
, and the like , each own assets that
they make available to the firm.
• Thus , the firm results from the
property rights and right of contract of
every corporate constituency and not
from those of shareholders alone.
The Contractual
• The origin of the contractual theory is the work of
Ronald Coase.

• On a Coasean view, the firm is a market writ small
in which parties with economic assets contract with
firms to deploy these assets more productively.
• The reason for deploying assets in a
firm instead of the market is to
realize the benefits of team
production through the reduction of
transaction costs; but insofar as
assets are firm-specific, their holders
will demand certain conditions for
their participation.
• Investors , employees , suppliers ,
customers and other groups make
their assets available to a firm only
with adequate safe guards against
• That each group will seek guarantees
to ensure that they are adequately
compensated for any assets that
cannot be easily removed from joint
productive activity.
• Most groups protect themselves by
means of contacts .
• Thus ,employees are often protected
by employment contacts ,suppliers by
purchase contacts , consumers by
warranties , and so on.
• The contacts with most corporate
constituencies are relatively
unproblematical , but one group raises
special problems namely share
• In the financial articulation of the
contractual theory, shareholders
become residual risk bearers; that is,
they provide capital to a corporation
in return for a claim on residual
• According to finance theory,
shareholders are better suited than
other constituencies to bear residual
risk because of limited liability and
the opportunity to diversify.
• Finance theory holds that wealth
maximizing decisions are more likely to be
made by residual claimants, since they
bear the marginal costs and gain the
marginal benefits of all new ventures.

• Thus, in the financial articulation of the
firm, the interests of all constituencies are
best served by making the shareholders'
interests the objective of the firm
Back up
“Good Ethics Means
Good Business”