BECG

Business Ethics
 Framing Business Ethics:
Corporate Responsibility, Stakeholders,
and Citizenship
 Overview
Analyse the notion of responsibility for
corporations;
Distinguish the various notions of
corporate social responsibility;
Present the stakeholder theory of the firm;
Develop the concept of corporate
accountability;
Critically examine the newly emerging
notion of corporate citizenship ;
The specific European implications of these
mostly US-born - concepts.
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 1970 classic article The social
responsibility of business is to increase its
profits
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?
Long and 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 corporate 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 and resources
responsibly
All corporate activities have social impacts of one
sort or another
Corporations rely on the contribution of a wide set of
stakeholders in society rather than just shareholders
 What is the nature of
corporate social
responsibilities?
Corporate social responsibility
encompasses the economic, legal,
ethical, and philanthropic
expectations placed on
organizations by society at a given
point in time
(Carroll & Buchholtz 2000:35)
 Carrolls four-part model of
corporate social
responsibility
Desired by
society
Philanthropic
Responsibilities
Expected by
Ethical
society
Responsibilities
Required by
Legal society
Responsibilities
Required by
Economic society
Responsibilities

Source: Carroll 1991

 CSR in a European context
In Europe concept of CSR never been quite as
influential as in USA
Could argue that all levels of CSR play a
different role in Europe
Economic responsibility
USA strongly focused responsibility to shareholders
Europe focused on the economic responsibility to employees and
local communities as well
Legal responsibility
Prominent role of state in regulating corporate practice in Europe
Ethical responsibility
Europeans tend to exhibit greater mistrust of modern
corporations
Philanthropic responsibility
In Europe mostly been implemented compulsorily via the legal
framework rather than via discretionary acts of successful
companies (USA)
 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 in an organization isany
group or individual who can affect, or is
affected by, the achievement of the
organizations objectives (Freeman 1984:46)
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

Governmen Competitors
t

Shareholders Customers
Firm

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

Customer
stakeholder
Shareholders Customers
3
Firm
Employee
Suppliers stakeholder
Employees 1
Civil society
Supplier Employee
stakeholder stakeholder
Civil society 2
1 Civil society stakeholder
stakeholder 1
2
 Why stakeholders matter
Milton Friedman businesses should only
be run in the interests of their owners
Reasons why other groups also have a
legitimate claim on the corporation
Legal perspective
Legally binding contracts
Economic perspective
Externalities
No contractual relations
Agency problem
 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 a
European context
One could argue that although the
terminology of stakeholder theory
is relatively new in Europe, the
general principles have actually
been practised for some time:
German supervisory board
Covenant Approach in environmental
regulation in the Netherlands
 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
Dependency on the democratic process
Corporate power on the rise
Liberalization and deregulation results in more
power and choice for private actors
Privatization of public services
Rising unemployment
Globalization
Growing amounts of self-regulation
 The problem of
democratic accountability
Central question is who controls
corporations and to whom are
corporations accountable

Transparency is the degree to

which corporate decisions, policies,
activities and impacts are
acknowledged and made visible to
relevant stakeholders
Corporate citizenship
 Why a new term?
Few possible reasons why business might be
argued to be happy to embrace this new
terminology:
Business ethics has a somewhat patronising
slant to it (van Luijk 2001)
Corporate social responsibility has admonishing
and reproachful connotations
Most existing terms initially introduced by
academics, making it difficult to establish
legitimacy in the business world
Citizenship initially coined by practitioners
Commitments to 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
Three views of corporate
citizenship
An extended view of CC

Corporate citizenship

Social role of the corporation in administering citizenship

rights

Social rights corporation as provider

Civil rights corporation as enabler

Political rights corporation as channel

 Assessing corporate
citizenship as a framework
for business ethics
Ways in which the extended view of CC adds
something significant that helps us frame
business ethics in new ways:
Helps us to better see the political role of the
corporation
Clarifies the demand for corporate accountability
Helps us to better understand some of the
challenges posed by globalisation
The rights of citizenship have strong links to the
goal of sustainability
More in keeping with the European tradition of
business ethics
 Summary
We have discussed business ethics
in relation to the social role of the
corporation
Outlined the nature of corporations
Discussed the different views and
elements of CSR, stakeholder theory
and corporate accountability and
assessed their relevance in a
European context