BUSINESS ETHICS

AND SOCIAL
RESPONSIBILITY
 UNIT III:
The Social Responsibility
of Business
 LESSON 9
The Concept of Corporate
Social Responsibility
 Lesson Objectives
• To define corporate social responsibility (CSR)
• To distinguish between CSR and business
ethics
• To give some simple business illustrations of
CSR
• To explain the business case for CSR
 What Is Corporate Social
Responsibility (CSR)?
 It refers to a corporation’s responsibilities or
obligations toward society.
 The World Business Council for Sustainable
Development (WBCSD), define CSR as “a
continuing commitment by business to behave
ethically and contribute to economic
development while improving the quality of life
of the workforce and their families, the local
community, and society at large.”
 Point of Contention on What
Obligations Are Included in CSR

Do companies have a responsibility to donate to

charities or to give their employees higher wages
and customers safer products? Or are they
obligated to maximize profits for their
shareholders or stockholders?
 Milton Friedman’s View of CSR

 Based on assumptions of
private property and the
free market, the ONLY
social responsibility of
business is to INCREASE
its PROFITS.

http://www.rschindler.com/friedman.jpg
 On Friedman’s view, which The main reason why
we can call the shareholder Friedman holds this theory is
view, the company, through that, in his view,
executives hired by the shareholders OWN the
shareholders (owners), has company. Since the
the SOLE responsibility to company is theirs, ONLY
legally and ethically “make THEY have the moral right to
as much money as possible” decide what it should be
for its owners. used for.

However, Friedman does not say that there are no limits to

what executives can do to make stockholders as much money
as possible. He explicitly says that they must operate WITHIN
the RULES OF SOCIETY including both the rules of the law
and the rules of ethical custom.
Since Friedman believes that shareholders and not
executives who own the resources of the company, he
further argues that the exercise of social responsibility by
a corporate executive is: (1) unfair, (2) undemocratic, (3)
unwise, (4) a violation of trust, and (5) futile.
  In working to achieve its
social responsibility of
maximizing profits in
competitive markets, the
company will end up
benefiting society through
more efficient use of
resources than competitors,
payment of competitive
wage to employees, and
providing of customers with
http://www.rschindler.com/friedman.jpg products that are better,
cheaper, and safer than
those of competitors.
Arguments on Friedman’s Claims
 CLAIM: The manager or executive is the
employee of shareholders.

ARGUMENT: Legally, the executive is the

employee of the corporation and so the
executive is legally required to serve the
interests of the CORPORATION—his true
employer—not of its shareholders.
 CLAIM: Shareholders are the “owners” of the
corporation and that the corporation is their
“property.”

ARGUMENT: Shareholders only own stock

and this gives them a few limited rights. But
they do not have all the other rights that TRUE
OWNERS would have and so they are NOT
REALLY owners of the corporation.
 CLAIM: The executive’s core responsibility is
to run the corporation as stockholders want it
to be run.

ARGUMENT: The executive probably has NO

IDEA how stockholders want the company to
be run. Legally, anyway, he is REQUIRED to
run the company in ways that serve MANY
OTHER INTERESTS, including those of
employees and consumers, besides those of
stockholders.
 CLAIM: The corporation will best serve
society by seeking to maximize shareholder
returns.

ARGUMENT: Sometimes, competitive forces

FAIL to steer companies in a socially
beneficial way and, instead, LEAD them to act
in a socially harmful manner.
 Discussion Questions
1. What is the most important responsibility of
business?
2. How do you define corporate social
responsibility (CSR)?
3. How would you distinguish between CSR and
business ethics?
4. Do you think countries should require
companies to undertake CSR? Why or why
not?