Lecture 5: Corporate Social

Responsibility (CSR)
Recap

 The power of organizational context

 Organizational Culture

 Formal and Informal Cultural Systems,

 The relationship between:

 Leadership & organizational culture

 Ethics codes and behaviour

2
 Overview

 The concept of CSR

 Core characteristics of CSR

 Corporate social responsibility perspectives

o Classical view (Milton Friedman)

o Contemporary view (Carroll)

o Stakeholder view (Edward Freeman)

3
Apple 'failing to protect Chinese
factory workers'

• https://www.youtube.com/watch?v=kSvT02q4h40

4
Nike was also criticized for poor
working condition of workers

https://www.youtube.com/watch?v=Vf_02xwQ4PQ

5
Coca-Cola Vietnam being watched for
tax evasion

6
Environmental problems: Vedan
admits to polluting parts of Thi Vai River

https://www.youtube.com/watch?v=50VZA6lc2ek

7
Formosa – Steel Plant
Massive Fish Deaths

• Formosa released toxic

waste water into the
ocean.

• Causing massive fish

deaths in several central
provinces of Viet Nam.

• Who gets what ? and who

has to suffer ?

8
Defective products:
Toyota to pay $1.3 billion for deadly defect
cover-up

 Toyota misled US consumers by

concealing and making
deceptive statements over two
safety issues that caused cars to
accelerate even as drivers tried to
slow them down.

 https://www.youtube.com/watch?v=X8j
GTwXPEXs

 http://www.abc.net.au/news/2014-03-
20/toyota-pays-1-3-billion-for-defect-
cover-up-statements/5332894

9
• Do you think corporations have
responsibilities to society ?

• If yes, to whom ? and why ?

10
 Customers/
consumers
Suppliers,
Environment
Distributors

Corporations
Shareholders Employees

Communities
Competitors Government
society
 Growing Need and Pressure

 Corporations have a strong impact on society

 As a result, there is a growing need and pressure for

them to be socially responsible toward many
parties/stakeholders.

12
 Responses from Companies

 Companies have responded to that growing need and

pressure by pursuing various activities, e.g.,
 Developing quality and safe products,

 Improving employees’ working conditions,

 Treating employees fairly and respect human rights everywhere,

 Protecting the environment,

 Contributing to the development of local communities, and

 Doing philanthropy…

 These activities have been characterized by a very

common term: Corporate Social Responsibility.
13
 Responses from Companies

1. Some companies fail to perform their social responsibilities and then

pursue them to respond/react to the pressure/concerns from
stakeholders
 Examples:

 Since the early 2000s, Coca-Cola Company, its subsidiaries and products, have been criticized
by various groups, concerning a variety of issues, including health effects, environmental issues,
and business practices.

 Coca Cola now pursues various CSR activities to respond to these concerns.

 Similarly, Apple and Nike were criticized for poor treatment of their suppliers’ workers, but they
now work hard to raise ‘factory labor and safety standards’.

 Nike, for example, warns its contract manufacturers that: “adhere to new labor and sustainability
standards or risk losing Nike’s business”.

 This approach is reactive, and the firm has to play catch–up to repair damage
(Trevino, Nelson, 2014).
14
 Responses from Companies

2. Some companies strategically analyze their practices and actively

pursue CSR activities
 These firms actively pursue CSR activities in areas where their business
may potentially be harmful to society
 This may help them to avoid damage of reputation (and thus profit), maintain
legitimacy, and ensure a good corporate citizen.
 For example, Starbucks is committed to “100% ethically sourced coffee”
and protection of environment.
 Starbucks only purchases coffee from farmers who preserve forests
 The firms following this approach also actively pursue CSR activities that the
companies are good at and may bring profit to the companies.
 For example, Toyota develops hybrid cars. (Trevino, Nelson, 2014)

15
 Responses from Companies

3. Some companies just pursue CSR activities because of ethical reasons,

i.e. it is the right thing to do

 Merck, an American pharmaceutical company, invested about $200 million to

develop a medicine for the river blindness disease which affected millions of
people in developing countries.

 Honda strictly pursues its philosophy of fuel economy to protect the

environment.

(Trevino, Nelson, 2014)

16
 So, what is CSR ?
 Numerous definitions – No single definition that is universally accepted.

 Here are some notable definitions of CSR:

1. ‘the firm’s consideration of, and response to, issues beyond the narrow economic, technical, and
legal requirements of the firm’ (Davis, 1973);

2. ‘a way in which enterprises give consideration to the impact of their operations on society’
(International Labour Organization);

3. “a way of realizing its ‘social responsibilities’ beyond making a profit for its shareholders” (Corporate
Responsibility Coalition – CORE, 2011)

4. a way in which businesses ‘try to do good to the people while conducting their business. But profit-
making still remains their main goal’ (Grameen Bank – Bangladesh)

5. ‘a concept whereby companies integrate social and environmental concerns in their business
operations and in their interaction with their stakeholders on a voluntary basis’ (Commission of the
European Communities, 2002)
17
Core characteristics of CSR

18
Voluntary

 CSR is about voluntary activities that go beyond those prescribed

by the law.

 For example, McDonald’s, KFC, Pret A Manger, and Pizza Hut

voluntarily agreed in 2011 to introduce calorie labelling in the UK
on their food and beverage items.

19
Managing externalities

 Externalities are the positive and negative side-effects of corporations’

economic behaviour

 However, externalities are born by others, not the corporations, and are not
taken into account in a firm’s decision-making process, and also not included
in the market price for goods and services.

 Pollution is a classic example of an externality - local communities bear the

costs of manufacturers’ actions.

 Many CSR activities deal with such externalities (for example, minimizing
carbon emissions, calculating the social and economic impacts of downsizing,
or reducing the health impacts of ‘toxic’ products).

20
 Multiple stakeholder orientation
 Undeniably, firms have responsibilities to shareholders

 However, firms also rely on various other stakeholders such as

consumers, employees, suppliers, and local communities to survive
and prosper.

 As a result, firms have responsibilities not only to shareholders, but

also to various other stakeholders.

 CSR thus involves considering the interests of, and the impact on,
multiple stakeholders other than just shareholders.

21
 Alignment of social and
economic responsibilities
 While CSR may be about going beyond a narrow focus on
shareholders and profitability, many also believe that it should not,
however, conflict with profitability.

 This feature gives rise to a heated debate – i.e. how firms can be both
profitable and socially responsible in doing CSR.

 However, it is widely accepted that CSR may support long-term

business growth and success.

22
 Practices and values

 CSR is clearly about a particular set of business practices

and strategies that deal with social issues,

 However, it is also about something more than that –

namely a set of values such as fairness, respect, and
integrity that underpins these practices.

23
Beyond philanthropy

 In some regions of the world, CSR is mainly about philanthropy –

i.e. corporate donation towards the less fortunate.

 However, ‘real’ CSR is more than just philanthropy and

community giving.

 It is about how the entire operation of a firm (e.g., production,

marketing, procurement, human resource management, logistics,
finance…) impacts upon society.

24
 CSR - Summary

 CSR has gained prominence in recent years

 CSR has six core characteristics.

 It focuses on the company’s responsibilities towards its stakeholders.

 In the previous weeks, we consider ethics of individuals. This week,

with CSR, we are looking at ethical behaviour of corporations.

 By considering that corporations have responsibilities towards society,

we also hold them morally responsible for their actions as we hold
individuals morally responsible for their actions.

25
Different Views on Social Responsibility
of Corporations

1. Classical view – Milton Friedman

2. Contemporary view - Carroll

3. Stakeholder view – Edward Freeman

26
 Classical View – Milton Friedman
The case against CSR
Milton Friedman considered that

 Primary goal and motivation of business is profit.

 Thus, there is one and only one social responsibility of business – that is
to make as much money for the stockholders as possible.

 Importantly, a corporation executive is an agent serving his

principals/shareholders.

 Thus, a corporation executive does not have the right to spend someone
else’s money – i.e. shareholders’, customers’ or employees’ money – to
further social interests.

 Suppose he could spend someone else’s money, how is he going to do

that ? (Friedman, 2002)

27
 Classical View – Milton Friedman
The case against CSR

 To Friedman, if we want companies to behave

responsibly, we should establish a legal framework
with rules and regulations to require companies to
do so.

 For example, to protect environment or ensure

quality products, there should be law governing
these issues and corporations have to follow the
law.

(Friedman, 2002)

28
 2. Contemporary View - Carroll

 According to Carroll, the social responsibility of business consists of

four different types of responsibility

 Economic responsibilities,

 Legal responsibilities,

 Ethical responsibilities, and

 Discretionary/philanthropic responsibilities.

 These types of responsibility are tied together as a whole and must

be considered by the companies simultaneously.

29
Carroll’s Pyramid of Corporate Social
Responsibility

Philanthropic responsibilities

Ethical responsibilities

Legal responsibilities

Economic responsibilities

(Carroll 1991, 1998)

30
 (Carroll 1991, 1998)
Desired

Expected

Required

Required

31
 Corporate Social Responsibilities
1) Economic responsibilities

 The primary function of business is to produce goods and services for society,
while making an acceptable profit.

 This responsibility is the bedrock of CSR. Without financial viability, other

responsibilities are dubious.

2) Legal responsibilities

 Business is required to carry out its work lawfully.

 However, it should be noted that

 Law is only the minimum standards of acceptable behaviour

 Not every societal expectation has been codified into law

 Law is not always up to date

 Laws may lag behind ethical thinking (Carroll, 2014))

32
 Corporate Social Responsibilities
3) Ethical responsibilities
 Ethical responsibilities go beyond legal responsibilities to
include more general responsibility to avoid harm and do
what is right, just, and fair.
 Business ethics is concerned with ‘knowing ethics’ and ‘doing
ethics’
4) Philanthropic responsibilities
 Responsibilities to contribute resources (time, money, goods,
services...) to the community, and improve quality of life.
 Voluntary endeavour - failure to be philanthropic not
considered unethical.

33
 Problems with the Pyramid
(Four Faces Approach)

 The four responsibilities actually overlap

substantially.
 Philanthropic responsibility should be within the
economic and ethical spheres
 The pyramid structure creates the impression of
hierarchy which is untrue.
 Carroll updated this pyramid structure of CSR
into a “Three Domain Approach”.

34
 Three Domain Approach
Schwartz & Carroll (2003)

Legal
Legal

Legal & Economic Legal & Ethical

Legal, Economic
& Ethical

Economic Ethical
Economic & Ethical

35
3. Stakeholder Theory (Freeman)

 Stake: an interest in, or a right to, something

 Stakeholders: any group or individual who can affect or is
affected by the achievement of the organization’s purpose
(Freeman 2010).
 ‘Businesses can be understood as a set of relationships among
groups that have a stake in the activities that make up the
business’.
(Freeman 2008)

36
Stakeholders

37
Stakeholder Theory (Freeman)

 Corporations ought to create as much values for

stakeholders as possible.
 No stakeholder’s interest is viable in isolation of the
other stakeholders’ interests.
 Stakeholder theory thus contrasts with the classical
view which puts shareholders at the center of the firm
(over and above the interests of customers, suppliers,
employees and other stakeholders).
 Stakeholder theory considers stakeholder interests as
joint, as a single unit, as inherently tied together.
(Freeman 2008) 38
 Shareholder/classic & Stakeholder
views of the firm

Why do organisations exist?

Shareholder/classical view Stakeholder view

To maximise shareholder To create sustainable value, not

wealth wealth, for all stakeholders

39
Three Aspects of the Stakeholder Theory

(Donaldson & Preston 1995)

40
 Three Aspects of the Stakeholder Theory

The stakeholder theory makes three important

points:
 First, a corporation is a combination of interconnected interest groups
(descriptive aspect)

 Second, corporations that adopt CSR will be more successful than

corporations that do not - other things being equal (instrumental
aspect)

 Third, and most importantly, creating/maximizing values for ALL

stakeholders is the right thing to do under various normative
ethical theories such as utilitarianism, duties-based theories,
Kantianism, justice ethics, and virtue ethics (normative aspect).
41
 The Normative Aspect
 Utilitarianism:

 Creating/maximizing values for ALL stakeholders is the right thing to do under

utilitarianism.

 Do you know why ?

 It produces the best outcomes for all stakeholders.

 Duties-based theories:

 Do companies have moral duties towards stakeholders (e.g., consumers,

employees, shareholders, and communities) ?

 Why ?

 Stakeholders are affected by companies’ operation & they have basic rights that
need to be respected.

 Creating/maximizing values for ALL stakeholders helps companies fulfill

their moral duties towards various stakeholders.

 Thus, it is the right thing to do under the duties-based theories.

42
 The Normative Aspect
 Creating/maximizing values for ALL stakeholders is the right thing to do under
justice ethics.

 This is because…

 Creating/maximizing values for ALL stakeholders helps to allocate benefits

fairly among all stakeholders

• (this is distributive justice - who gets how much of the organizational

outcomes cake?)

 Creating/maximizing values for ALL stakeholders also helps to answer the

question as to who gets a say in deciding how the benefits should be
shared (the decision making process)

• (this is procedural justice - who gets a say in deciding how the cake is
baked/shared).
43
The Normative Aspect

 Virtue Ethics:

 Creating/maximizing values for ALL stakeholders is the right

thing to do under virtue ethics

 This is because it helps to promote business virtues of the

company/the executives.

• e.g., loyalty to the interests of stakeholders, efficiency,

fairness, respect, and integrity…

44
 Summary of the debate:
For & Against CSR
 The classic view argues against the CSR.
 The contemporary view & stakeholder view argue for CSR
 Which view(s) do you think is/are more convincing ?
 It seems that the contemporary view & stakeholder view are more convincing because …
 Corporations have impact on society => they should minimize the negative impact on
society.
 These views are more consistent with the normative ethical theories;
 Corporations are born into and operate in society - part of society, it is thus reasonable
to required them to behave responsibly to society.
 In the words of Cadbury,
o the continued existence of companies is based on an implied agreement
between business and society
o The essence of this implied agreement is that companies shall not pursue their
immediate profit objectives at the expense of the long term interests of the
community (Cadbury, 2002).
45
Further readings on the debate
The case against CSR – Karnani (2010)

Karnani’s arguments against CSR:

 “Companies that simply do everything they can to boost profits will end up
increasing social welfare”

 Problem - misalignment between private and public interests

 Executives choose profit - otherwise incompetent or selfish, CG

problem.

 How then should we ensure good corporate behaviour?

1. Regulation 2. Activism

3. Self-regulation 4. Punishment - financial

46
The case for CSR – Smith (2003)

 Global Iimpact of business demands greater CSR

 Enlightened self-interest

 Reputational risk

 Societal expectations – Social License to Operate

(SLO)

47
 Conclusions

 There is a growing need, and pressure, for companies to be socially

responsible.

 CSR has 6 core characteristics.

 There are three principal theories on CSR:

o Classic View: Against CSR;

o Contemporary and Stakeholder Views: For CSR

 Mixed findings on the relationship between CSR and company performance

but generally positive (Margolis and Walsh 2003).

48
 References
• Carroll, AB 1991, 'The pyramid of corporate social responsibility: Toward the
moral management of organizational stakeholders', Business Horizons, vol. 34,
no. 4, pp. 39-48.
• Carroll, AB 1998, 'The Four Faces of Corporate Citizenship', Business and
Society Review, vol. 100, no. 1, pp. 1-7.
• Crane, A, Matten D & Spence, L (2014) Corporate Social Responsibility:
Readings and Cases in a Global Context (2nd Edition), Routledge, New York,
USA)
• Donaldson, T & Preston, LE 1995, 'The stakeholder theory of the corporation:
Concepts, evidence and implications', Academy of Management Review, vol.
22, no. 1, pp. 65-91.
• Elkington, J Cannibals with Forks: The Triple Bottom Line of 21st Century
Business, New Society Publishers, UK.
• Epstein, EM 1999, 'The continuing quest for accountable, ethical and humane
corporate capitalism', Business & Society, vol. 38, no. 3, pp. 253-67.
• Freeman, RE 2008, 'Managing for Stakeholders', in T Donaldson & PH
Werhane (eds), Ethical Issues in Business: A Philosophical Approach, 8 edn,
Prentice Hall, London, pp. 39-53.
• Freeman, RE 2010, Strategic management: a stakeholder approach,
Cambridge University Press, UK.
49
 References
• Friedman, M 2002, Capitalism and Freedom: Fortieth Anniversary Edition, University of Chicago Press.

• Friedman, M 2007, 'The social responsibility of business is to increase its profits', in WC Zimmerli, M
Holzinger & K Richter (eds), Corporate Ethics and Corporate Governance, Springer Berlin, pp. 173-8.

• Karnani, A (2010) 'The Case Against Corporate Social Responsibility', Wall Street Journal, 23 August 2010.

• Margolis, J.D. and Walsh, J.P. (2003). Misery loves companies: Rethinking social initiatives by business.
Administrative Science Quarterly, 48: 265-305.

• Matten, D & Moon, J (2008) Implicit and explicit CSR: a conceptual framework for a comparative
understanding of corporate social responsibility, Academy of Management Review 33(2): 404-424.

• Phillips, R, Freeman, RE & Wicks, AC 2003, 'What stakeholder theory is not', Business Ethics Quarterly, vol.
13, no. 4, pp. 479-502.

• Smith, NC (2003) Corporate Social Resonsibility: Whether or How?, California Management Review,
Summer, Vol.45 (4), pp.52-76.Smith, NC (2003)

• Schwartz, MS & Carroll, AB (2003) ‘Corporate Social Responsibility: A Three-Domain Approach’, Business
Ethics Quarterly, Vol. 13, No. 4 (Oct., 2003), pp. 503-530

• Wilmot, S 2001, 'Corporate moral responsibility: What can we infer from our understanding of organisations?'
Journal of Business Ethics, vol. 30, pp. 161-9.

50