Chapter Five:

Corporate
Social
Responsibility

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 Chapter Objectives
After reading this chapter, you will be able to:
1. Define corporate social responsibility.
2. Distinguish key components of the term responsibility.
3. Describe and evaluate the economic model of corporate social
responsibility.
4. Describe and evaluate the stakeholder model of corporate social
responsibility.
5. Describe and evaluate the integrative model of corporate social
responsibility.
6. Explain the role of reputation management as motivation behind CSR.
7. Evaluate the claims that CSR is "good" for business.

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 Introduction: Corporate Social Responsibility
• This chapter addresses corporate social responsibility (CSR)
and how firms opt to meet this perceived responsibility.
• Businesses have a social responsibility to obey the law.
• Economically, businesses have a social responsibility to
produce the goods and services society demands.
• There are ambiguities involved in each of the three terms
corporate, social, and responsibilities.
• The primary question of CSR is the extent to which businesses
and the managers who run them have ethical responsibilities
beyond producing goods and services within the law.

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 Ethics and Social Responsibility 1

The words responsible and responsibility are used in several

different ways.
• One meaning attributes something as a cause for an event or action.
• In a second sense, to be responsible does carry ethical connotations.
• When a business is responsible to someone or for something, it indicates what
a business ethically ought or should do.
• Product safety and liability laws involve these meanings of being responsible.
• Corporate social responsibility refers to the ethical expectations that
society has for business.
• Ethical responsibilities are those things that we ought, or should, do, even if
sometimes we would rather not.

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 Ethics and Social Responsibility 2

Philosophers often distinguish three different levels of ethical

responsibilities on a scale from less to more obligatory.
• Do good.
• Volunteering.
• Charitable work.
• Prevent harm.
• Good Samaritan.
• Use renewable energy
• Do not cause harm to others.
• A duty or an obligation.
• Enforced by law and results in legal punishment.

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 Ethics and Social Responsibility 3

The strongest sense of responsibility is not to cause harm.

• Even when not explicitly prohibited by law, ethics demands we not cause
avoidable harm.
• Overrides business’s pursuit of profit.

Is there a responsibility to prevent harm?

• A more inclusive understanding of corporate social responsibility would
hold that business has a responsibility to prevent harm.

Is there a responsibility to do good?

• Most wide-ranging, standard of CSR holds that business has a social
responsibility to do good things and to make society a better place.
• Is philanthropy something that every business ought to do?

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 Ethics and Social Responsibility 4

• There are competing understandings of corporate social

responsibility and management’s role in fulfilling these
responsibilities.
• The narrow economic model of CSR directs managers to
maximize profit and shareholder wealth within legal limits.
• The stakeholder model assets that neither a business nor the
employees are exempt from ordinary ethical responsibilities.
• The integrative model of CSR says that part of the managerial
responsibility to shareholders is to serve the social good.

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 Figure 5.1: Models of Corporate Social Responsibility

Access the text alternative for slide image.

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 Corporate Social Responsibility 1

Corporations are people.

Mitt Romney

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 Economic Model of CSR 1

The general definition of the term corporate social responsibility

(CSR) is the ethical responsibilities that a business has to the
society in which it operates.
From an economic perspective, a business is an institution.
• By doing this, the business is creating jobs and wealth that provide further
social benefits.

The law created a form of business called a corporation, which

promotes these economic ends by limiting the liability of
individuals for the risks involved in these activities.

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 Economic Model of CSR 2

The economic model of CSR holds that businesses’ sole social

responsibility is to fulfill the economic functions they were
designed to serve.
• Managers are employees, or agents, of stakeholders and must work to
further stakeholder’s interests, primarily by maximizing profits.
• Many observers identify this perspective as the dominant model of CSR
and refer to it as managerial capitalism.

Places shareholders at the center of the corporation.

• Managers have a fiduciary duty to pursue profit within the law.

Corporations are expected to obey legal mandates.

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 Economic Model of CSR 3

Business has no social responsibilities beyond the economic and

legal ends for which it was created.
Economist Milton Friedman suggests that managers fulfill their
ethical responsibility by increasing shareholder wealth and
pursuing profit.
• This common view of corporate social responsibility has its roots in the
utilitarian tradition and in neoclassical economics.

Within this dominant economic model, there is room to pursue

social responsibilities.

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 Economic Model of CSR 4

Business has no obligation, but is free to contribute to social

causes as a matter of philanthropy.
• It builds goodwill and/or a good reputation, provides tax deduction, and
builds goodwill or a good reputation within the community.
• Some support causes that have little or no business or financial payoff as a
matter of giving back to their communities.

The economic model in which business support for a social cause

is done simply because it is the right thing to do differs from the
reputational version only in terms of the underlying motivation.

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 Stakeholder Model of CSR 1

The stakeholder model of CSR holds that businesses exist within

a web of social and ethical relationships and create value for a
range of stakeholders.
Philosopher Norman Bowie argues that business has an ethical
duty to respect human rights.
• It is the "moral minimum" that we can expect of every person.
• The obligation to cause no harm overrides other ethical considerations.
• If managers comply with the moral minimum, they should maximize
profits.

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 Stakeholder Model of CSR 2

Stakeholder theory
• Recognizes that every business decision affects a wide variety of people,
benefiting some and imposing costs on others.
• The stakeholder model simply acknowledges this principle and points out that
other ethical duties have an equal claim on managerial decision making.
• Acknowledges this fact by requiring management to balance the ethical
interests of all affected parties
• It asks managers to consider the consequences of its decisions.
• Social responsibility requires decisions to prioritize competing and
conflicting responsibilities.
• Because stakeholder theory recognizes that some stakeholders have different
power and impact on decisions than others.

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 Corporate Social Responsibility 2

Corporate social responsibility is measured in terms of

businesses improving conditions for their employees,
shareholders, communities, and environment. But moral
responsibility goes further, reflecting the need for corporations
to address fundamental ethical issues such as inclusion, dignity,
and equality.
Klaus Schwab, Chairman of the World Economic Forum

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 Integrative Model of CSR
Should business be expected to sacrifice profits for social ends?
• There are organizations that pursue social ends as the very core of their
mission, such as nonprofits.
• Some for-profit organizations have social goals as a central part of the
strategic mission.
• Because these firms integrate economic and social goals, they are using
the integrative model of CSR.
• There are no claims that every business should adopt the principles of
benefit corporations.
• Benefit corporations show profit is not incompatible with doing good, and
therefore that one can do good profitably.
• Others argue sustainability is relevant to every business concern.

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 The Implications of Sustainability
As a topic within CSR, sustainability means a firm’s financial goals
must be balanced against, and may be overridden by,
environmental considerations.
Defenders say all economic activity exists in a biosphere that
supports all life.
• The present model of economics, and especially the macroeconomic goal
of economic growth is running up against the limits of the biosphere's
capacity to sustain life.
• Success must be judged by the financial bottom line, as well as the
ecological and social bottom lines.
• A corporate sustainability report provides stakeholders with financial and
other information regarding a firm’s economic, environmental, and social
performance.

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 Corporate Social Responsibility 3

Stakeholder capitalism is not about politics. It is not a social or

ideological agenda. It is not ‘woke’. It is capitalism, driven by
mutually beneficial relationships between you and the
employees, customers, suppliers, and communities your
company relies on to prosper. This is the power of capitalism.
Our conviction at BlackRock is that companies perform better
when they are deliberate about their role in society and act in
the interests of their employees, customers, communities, and
their shareholders.
Larry Fink, CEO BlackRock Capital

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 Exploring Enlightened Self-Interest
Other reasons besides self-interest and economics for a business
to engage in socially responsible activities.
• CSR can impact a firm’s reputation within a community.
• The problem with a focus on reputation is that social responsibility then can
become merely social marketing.
• The practice of attending to the "image" of a firm is referred to as reputation
management; failure to do so might be a poor business decision.
• Companies may be challenged for engaging in CSR activities solely for the
purpose of affecting their reputations.
• Reputation management is the practice of caring for the “image” of a
firm.
• It can be well-respected for its products and services, financial performance,
as a good place to work, and as a good corporate citizen.
• If a firm develops a bad reputation, it can create significant barriers to
business success.
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 Exploring Enlightened Self-Interest 1

Is good ethics also good business?

• Enlightened self-interest presumes it is, or at least can be.
• Theorists continue to dispute whether ethical decisions lead to more
significant profits than unethical decisions.
• There is a general agreement that ethics pays off in the long run, but how to
measure that payoff is the challenge.
• Often the measurement of a good reputation occurs in the long-term, but
performance is measured in the short-term.

Is there a business case for return on investment from ethics?

• Evidence says yes, but the dominant thinking is that, if it cannot be
measured, it is not important.

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 Exploring Enlightened Self-Interest 2

Measurement is critical as there are detractors.

• Political science professor David Vogel contends that firms with strong CSR
missions serve a niche market of consumers and investors.
• Argues that contrary to a global shift in the business environment, CSR instead
should be perceived as just one option

Research concludes that it does pay for businesses in emerging

markets to pursue a wider role in environmental and social
issues.
• Studies find there are a number of expected—and measurable—outcomes
to ethics programs in organizations.

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 End of Main Content

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