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CBEB3101 Business Ethics Lecture 4

Semester 1, 2011/2012Prepared by Zulkufly Ramly

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Topic 3Corporate Social

Responsibility

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Contents of Topic 3

• Definition of stakeholders

• Stakeholders groups• Ownership theory

versus stakeholder theory

• Definition of CSR• Arguments for and

against CSR• CSR Analysis • Corporate social

responsiveness3

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Topic 3 Learning Outcomes5.Contrast the ownership

theory with stakeholder theory

6.Explain the arguments for and against CSR

7.Assess a firm’s CSR using the four-part definition

8.Explain the concept of corporate social responsiveness

1. Define stakeholders

2. Identify and explain a firm’s primary and secondary stakeholders

3. Explain the importance of identifying stakeholder groups

4. Apply the typology of stakeholder attributes in classifying stakeholders

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StakeholderAny group that has a claim or interest in the operations

of a company that can affect or be affected by the policies or activities of the company

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Primary stakeholdersHave a direct stake in the company and its

success

Seconday stakeholdersHave a public or special interest stake in the

company 6

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A Typology of Stakeholder Attributes

The perceived validity or appropriateness of the

claim

The ability of a stakeholder to produce an effect

The degree to which the claim demands immediate

atttention

Legitimacy

Urgency

• Company is property of its owners

• Objective: To maximize returns to shareholders

• Shareholders’ interests are supreme and take priority

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Ownership theory

• Company serves a broader objective

• Must make profit for owners to survive, however, creates other kinds of value too

• Companies have multiple obligations

• All “stakeholder” groups must be considered

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Stakeholder theory

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• To understand potential sources of risk, disruption and tension to its business activities or projects – can assess them

• To evaluate source of influence over objectives and results for business– can identify stakeholders with most power and interest

• Morally right for firms to find out how a company’s decisions affect people

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Importance of Knowing

Stakeholders

• Obligations to maximise the company’s positive impact on stakeholders and to minimise its negative impact

• Company should be held accountable for any of its actions that its stakeholders

• Requires companies to balance the benefits to be

gained against the costs of achieving those benefits

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Corporate Social Responsibility

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Addresses social issues brought on

by business

The public supports CSR

Addresses issues by using business resources and

expertise

Discourages future government intervention

Protects business reputation

CSR is good because …

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Restricts the classic economic goal of profit maximization

Creates powerful business

Limits the ability to compete in global

marketplace

Dilutes the primary purpose of business

Business is not equipped to

handle social activities

CSR is bad because …

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Economic Be profitable and think long term survival

Legal

Philanthropic

Ethical

“giving back’ to society

Avoid questionable practices

Obey laws and government regulations

CSR Analysis

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• REQUIRED of business by society

• Society sanctions the beneficial existence and operations of businesses

• In return the society requires firms be financially effective

• Dramatically impact shareholders and employees – return, jobs, goods and services

Economic Responsibilities

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• REQUIRED of business by society

• Law is society’s codification of right and wrong

• Law prescribes ground rules for conducting businesses – ensure fair practices

• Businesses expected to honour all contractual obligations

Legal Responsibilities

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• EXPECTED of business by society

• Obligation to do what is right, fair and avoid harms

• Be mindful of activities and practices that are expected or prohibited by the society – althought not covered by law

Ethical Responsibilities

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• DESIRED/EXPECTED of business by society

• Reflect current expectations of business by the public

• Guided by business’s desire to engage in social activities – but not mandated

• If companies do not wish to participate then it is not considered unethical

• Society expected businesses to ‘give back’

Philanthropic Responsibilities

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• If philanthropic activities are actually voluntary why include in the corporate social responsibility?

• Philanthropy is a responsibility because it is expected of business by society

• However, it is not required, as are the economic and legal responsibilities

• Can forego philanthropic activities without suffering sanctions from society

• Has discretion in what causes it supports and how it contributes to those causes

• Discretionary - managers are given freedom and flexibility to make proper judgment on the need to fulfill this part of CSR

Voluntary but responsible?

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Characteristics of Socially Responsible Firms

• Makes product that are safe• Does not pollute air or water• Promotes honest/ethical

employee behavior• Does not use

misleading/deceptive advertising

• Protects employees against sexual harassment

• Recycles within company

Responds quickly to customer problems

Maintains waste-reduction programme

Helps displaced workers with placement

Gives money to charitable/educational causes

Tries to continually improve quality

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• A more proactive and action oriented concept

• Firms anticipate social expectations

• Meet them before they are imposed as a new responsibility

• E.g. child care benefits to its working parents

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Corporate Social Responsiveness

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Is corporate social responsiveness an improvement of CSR?

Obligations and accountability

implied that business should do only the

minimum that would satisfy the duties imposed on it by

society

Focus of CSR

Using this approach both encourages social performance by business and allows it more

freedom in what actions it will take

Focus of corporate social

responsiveness• A proactive, dynamic and action orientation

• Actively seek to meet social needs before they become a duty imposed by society

YES!

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