Corporate Social Responsibility

&
Sustainable Development

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Evaluation Criteria

 10% - Class participation.

 20% - Quizzes
 30% - Group Project
 40% - End-term Exam

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What is CSR?

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Why social responsibility for Corporates?

 What is the main purpose of a business

organisation?

 Who should really be concerned with social

responsibility?

 Is it really the job of a business organisation to be

concerned about social issues and problems?

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Milton Friedman

“There is one and only one

social responsibility of
business – to use its
resources and engage in
activities designed to increase
its profits so long as it stays
within the rules of the game,
which is to say, engages in
open and free competition
without deception or fraud”
The Social Responsibility of
Business is to Increase its Profit
(1970)
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 Milton Friedman’s argument

“Few trends could so thoroughly undermine

the very foundations of our free society
as the acceptance by corporate officials
of a social responsibility other than
to make as much money
for their shareholders as possible.”

The business of business is business.

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Friedman’s View of Pollution

Avoiding pollution
Less profit

Business More profit

Polluting
Which behaviour does Friedman prescribe?
Is pollution by business an issue today?

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 So, should companies be responsible
only to shareholders?

 YES -Milton Friedman argues that company’s sole

responsibility is to increase profits
 Why?
 Responsibility of an executive is to conduct business
according to needs of employers and make as much money
while conforming to basic rules of society
 By giving away profits, the executive is imposing taxes on
shareholders
 Taxation is the responsibility of the government
 Executives should therefore take actions that are solely in
the interests of shareholders
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Interdependence - a Corp. and Society
 Successful corporations need a healthy society
Education, healthcare, safe working conditions,
good govt. strong regulators
 A healthy Society needs successful companies
Creates jobs, wealth that pays taxes, innovation
to improve standard of living and social
conditions
Successful Corporations cannot survive in a failing
Society

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Stakeholders and the Enterprise
Stakeholders are any group - inside or outside the firm - who affects or is
affected by the firm’s goals & has a stake in the firm’s performance

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Key Stakeholders’ Expectations
 Shareholders/Investors – expect good dividend & capital
appreciation in market value of shares
 Customers - quality, availability, price, safety
 Employees – expect good salary & perks, a dynamic, stimulating
and rewarding work environment & skill development/ career
growth
 Suppliers – expect to get paid highest sustainable prices for
goods and services, expect loyalty
 Government - taxes, employment
 Society at large –expect companies to be long-term employers and
providers of tax revenues, community development, Environment
Protection & Social Welfare

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 Stakeholder Theory/Management

 Decisions should be taken in the wider interests of stakeholders

and not just the narrow shareholder interest
 At times, there are conflicting expectations of stakeholders
 If the firm is strategically competitive & earns above average
returns, it can afford to simultaneously satisfy all stakeholders.

 When earning average or below-average returns, tradeoffs must

be made. At the level of average returns, firms must at least
minimally satisfy all stakeholders.

 When returns are below average, some stakeholders can be

minimally satisfied, while others may be dissatisfied.

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 Why CSR? …..The Moral case
 Businesses should promote the betterment of society, acting in
ways to benefit all stakeholders (not just the shareholders)
because It’s the right thing to do!
 Business relies on inputs from society and on socially created
institutions.
 Businesses do not have an unquestioned right to operate in
society. Based on an implied social contract,
 Society grants a business the right to conduct its business
affairs
 Society agrees not to unreasonably restrain a business’
pursuit of a fair profit
 In return for a “license to operate,” a business should
 Act as a responsible citizen
 Do its fair share to promote the general welfare 13
An important view on CSR
“I think many people assume, wrongly, that a company exists
simply to make money.
While this an important reason of a company’s existence, we
have to go deeper and find the real reasons for our being.
As we investigate this, we inevitably conclude that a company
exists so that … able to accomplish something collectively
that… could not accomplish separately–
…. make a contribution to society,
a phrase which sounds trite but is fundamental”
Dave Packard
a co-founder of Hewlett-Packard
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Why CSR ? …… The Business Case
CSR affects the bottom line by
•Higher employee morale & commitment, attracts & retains staff
•Enhancement of the brand with customers
•Better relations with governments, local communities
•Competitive advantage over rivals, attracts ethically conscious
customers
•Reduced likelihood of regulatory intervention
•Attracts green & ethical investment, cheaper capital from
investors
Shareholders benefits – the shares do better
for a socially responsible company
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Factors ‘for’ & ‘against’ CSR
 The Factors “in favour of ” CSR
 CSR Increases long-run profits
 Improves public image
 Helps avoid government regulation
 Businesses have resources and ethical obligations to act
responsibly
 The Factors “against” CSR
 Creates higher business costs
 Reduces business profits
 Dilutes business purpose
 Social issues are not the concerns of businesses
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 So, what is CSR?
 Definition # 1:

 Philip Kotler and Nancy Lee (2005) define CSR as “a commitment to

improve community well being through discretionary business
practices and contributions of corporate resources”
 Mallen Baker defines CSR - “a way companies manage the business
processes to produce an overall positive impact on society.”
 Definition # 2:
 According to World Business Council for Sustainable Development
“Corporate Social Responsibility is the continuing commitment
by business to behave ethically and contribute to economic
development while improving the quality of life of the workforce
and their families as well as of the local community and society
at large”.
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Responsibilities of Business
The Pyramid of CSR

Archie B. Carroll (1981)

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Responsibilities of Business

Must do Have to do Should do Might do

Profit is like A responsibility A responsibility Go the extra

‘oxygen’–there to achieve to develop a set mile;
is no life without economic goals of ethical no payback
it. But,.... within the various standards and expected
.. is breathing central, state, stick to them.
the purpose of local laws.
life? 20
Responsibilities of Business

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 Philanthropic
Responsibilities

Evolving expectations Ethical

Responsibilities

Legal Responsibilities
 Societal expectations are not static, they keepEconomic
changing
with economic progress. To a large extent variation
Responsibilities
in
CSR expectations across nations has been a function of
economic prosperity.

 These changes thus have important implications on

firm’s discretionary & ethical responsibilities, gradually
moving them into the fold of legal responsibilities.

 While the economic & legal compliance is a minimal

condition of CSR, it is the ethical & discretionary
concerns that are less precisely defined and for which
there is often no clear societal consensus.

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How Companies respond to Social Demands
 Proactive Strategy
Lead the way with social
initiatives
 Accommodative Strategy
“When things go wrong, we are
responsible for making it right
- even if it isn’t our fault”
 Defensive Strategy
“We operate entirely within the
law and the law protects us”
 Obstructive Strategy
“We did nothing wrong”

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