An Introduction to Business Ethics

Chapter 3

Corporate Social Responsibility

Classical Model of Corporate Social Responsibility

• Corporations don’t have any responsibilities.

• Officers of corporations do, but they are narrowly defined according to perceived interests of the owners.

• What becomes clear ultimately is that the view does not deny that the agents of corporations have moral obligations, just that they are very specific (primarily fiduciary).

Corporations Don’t Have Responsibilities?

• Corporation’s are legal fictions.• Don’t have the capacities necessary for

responsibilities.• Knowledge and will.

• What about the fact that corporations are frequently held criminally and civilly liable?

• Also, corporations are increasingly granted the rights of individual citizens (First National Bank of Boston v. Bellotti).

If There is Responsibility it Must be That of the Officers

• Only people with the appropriate capacities.

• But to whom are they responsible? The owners.

• What is the nature of that responsibility?• To satisfy the will of the owners.

Utilitarian Defense of Classical Model

• The market guarantees maximization of good (usually characterized as ‘satisfaction’).

• Managers have a responsibility to conform closely with market expectations (maximize satisfaction).

• Evidence is expressed preferences of consumers and owners.

Criticisms of the Utilitarian DefensePart I

• There are a range of instances in which the pursuit of profits does not maximize satisfaction.• Market Failures

• Externalities (Polution, resource depletion).• Public Goods (Air, water, fisheries)-no pricing mechanism.• Prisoner’s Dilemma (cooperation more optimal than

competition).

• Complexity of markets and the contexts in which they function make it unlikely that a single-minded focus on profit will guarantee good outcomes.

Criticisms of the Utilitarian DefensePart II

• Of course, there may be mechanisms that could be developed to meet the sort of objections just noted.• Property values an economic measure of air quality

preferences.• However, there are more difficult conceptual

problems.• First-Generation Problem: markets are reactive, not

proactive.• Satisfaction does not equal happiness. It’s not

always good to get what you want.

Private Property Defense of Classical Model

• Corporations are the property of their owners.

• Officers of corporations are responsible to the desires of the owners.

• The primary desire of the owners of the corporation is profit maximization.

Criticisms of the Private Property Defense

• Right to property is not absolute.• Constrained by: rights of others; zoning;

eminent domain.

• Corporate Property Rights are different from personal property.• Stockholder of a corporation have limited

liability for actions of their corporations.• They have no direct rights of access/control.

The Moral Minimum Model of Corporate Social Responsibility

• A modified version of the Classical Model.• Supplements the Classical Model by adding

reference to fundamental moral standards.• Which standards is up for debate, but reference to

the Harm Principle (Do no Harm) is common.

• The pursuit of profit is understood to be constrained by these standards, in addition to the law.

Criticisms of the Moral Minimum Model

• The Moral Minimum Model is open to criticisms similar to those leveled against the Classical Model.

• In addition, whatever additional moral standards are invoked can also be sources of controversy.

Social Contract Theory

• The Social Contract Theory account of corporate social responsibility has its roots in a broader political theory.• Responsibilities and rights of individuals grounded in

a hypothetical contract between members of society.

• Expanding on this notion, people have suggested that the moral responsibility of businesses are similarly rooted in a “contract” between them and society.

Justifications of Social Contract Theory

• The benefits of business (especially corporations) to society are well recognized.• Accumulation of capital; distribution of risk; jobs.

• The potential costs are also obvious.• Resource depletion; political corruption;

concentration of wealth; threats to democracy.• A “contract” is the best way to understand the

tradeoffs between these benefits and risks• Takes the form of specific principles which guide

behavior of all parties to the contract.

Criticisms of Social Contract Theory

• There are both theoretical and practical criticisms of this account of corporate social responsibility.

• Theoretical• Specifying the terms of any contract requires identification of

initial conditions, but there is considerable disagreement about how these conditions should be understood.

• Practical• Granting the idea of a contract, how do we specify the actual

prescriptions that it underwrites? Social Contract theory is insufficiently action-guiding.

Stakeholder Theory

• The current focus of much of the thinking about corporate social responsibility is Stakeholder Theory.

• Adherents of the theory argue that all stakeholders in a corporation have a fundamental right to respect, and thus that corporate officers have a responsibility to treat them as ends rather than as means to ends.

Who is a Stakeholder?

• Narrow Definition• Any individual or group vital to the survival

and success of the corporation.• Wide Definition

• Any individual or group whose interests can affect or are affected by the corporation.

• Examples?

Defense of Stakeholder Theory

• Most defenses of Stakeholder Theory begin with the recognition that Stakeholders are conceptually related to stockholders.

• Justification then focuses on the reach and number of relevant normative concerns.• Differences between stockholders and

employees?

Criticisms of Stakeholder Theory

• A common criticism of Stakeholder theory emerges from the classical model.• Stakeholder theory inadequately addresses

stockholder rights and property rights.• Another criticism focusses on practical

issues.• Who are the stakeholders? How do they

count? How should managers take them into account in their decisions?